U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                 |X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   for the fiscal year ended December 31, 2003

               |_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                        Commission File Number 001-15061

                            ATLANTIC BANCGROUP, INC.
                 (Name of small business issuer in its charter)

             Florida                                             59-3543956
  (State or other jurisdiction                                (I.R.S. Employer
of incorporation or organization)                            Identification No.)

1315 South Third Street, Jacksonville Beach, Florida               32250
     (Address of principal executive offices)                    (Zip Code)

Issuer's telephone number: (904) 247-9494

Securities registered pursuant to Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the Exchange Act:

                     Common Stock, par value $0.01 per share
                                (Title of Class)

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

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|

The issuer's revenues for its most recent fiscal year were $7,717,000.

The aggregate market value of the common stock of the issuer held by
non-affiliates of the issuer (999,015 shares) at February 29, 2004, was
approximately $19.0 million based on the initial bid quoted price of $19.00 per
share as quoted on the NASDAQ SmallCap Market.

As of February 29, 2004, there were issued and outstanding 1,247,516 shares of
the issuer's common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Annual Meeting of
Shareholders to be held on April 22, 2004, filed as Exhibit 99.1 herein, are
incorporated into Part III, Items 9 through 13 of this Annual Report on Form
10-KSB.

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                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                                TABLE OF CONTENTS

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PART I.........................................................................1

              Forward-Looking Statements.......................................1

Item 1.       Description of Business..........................................2
              General..........................................................2
              Lending Activities...............................................3
              Deposit Activities...............................................4
              Investments......................................................5
              Correspondent Banking............................................5
              Interest and Usury...............................................6
              Supervision and Regulation.......................................6
              Recent Regulatory Developments..................................12
              Primary Service Area............................................12
              Competition.....................................................13
              Common Stock....................................................14
              Warrants........................................................14
              Preferred Stock.................................................14
              Indemnification of Directors and Officers.......................14
              Employees.......................................................15

Item 2.       Description of Properties.......................................16

Item 3.       Legal Proceedings...............................................17

Item 4.       Submission of Matters to a Vote of Security Holders.............17

PART II.......................................................................17

Item 5.       Market Price for Registrant's Common Equity and
                  Related Stockholder Matters.................................17
              Dividends.......................................................17

Item 6.       Management's Discussion and Plan of Operations..................18
              Selected Financial Data.........................................19
              General.........................................................20
              Results of Operations...........................................21
              Net Income......................................................21
              Comparison of Years Ended December 31, 2003 and 2002............24
              Net Interest Income.............................................24
              Provision for Loan Losses.......................................25

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              Noninterest Income..............................................26
              Noninterest Expenses............................................26
              Loans Receivable................................................26
              Classification of Assets........................................28
              Allowance for Loan Losses.......................................29
              Securities......................................................30
              Deposits........................................................32
              Bank Liquidity and Capital Resources............................34
              Other Borrowings................................................36
              Interest Rate Sensitivity.......................................38
              Recent Accounting Pronouncements Impacting Future Periods.......40
              Impact of Inflation.............................................41
              Quantitative and Qualitative Disclosures About Market Risk......41

Item 7.       Financial Statements............................................42

Item 8.       Changes in and Disagreements with Accountants
                  on Accounting and Financial Disclosure......................63

Item 8A.      Controls and Procedures.........................................63

PART III      ................................................................64

Item 9.       Directors and Executive Officers of the Registrant..............64
                  Compliance with Section 16(a) of the Exchange Act...........64
                  Code of Ethics..............................................64

Item 10.      Executive Compensation..........................................64

Item 11.      Security Ownership of Certain Beneficial Owners and Management
                  and Related Stockholder Matters.............................64

Item 12.      Certain Relationships and Related Transactions..................64

Item 13.      Exhibits and Reports on Form 8-K................................65

Item 14.      Principal Accountant Fees and Services..........................66

SIGNATURES....................................................................67

EXHIBIT INDEX.................................................................68

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                                     PART I

FORWARD-LOOKING STATEMENTS

Atlantic BancGroup, Inc. ("Atlantic" or the "Holding Company"), and its
wholly-owned banking subsidiary (Oceanside Bank), may from time to time make
written or oral statements, including statements contained in this report which
may constitute forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934 (the "Exchange Act"). The words "expect,"
"anticipate," "intend," "consider," "plan," "believe," "seek," "should,"
"estimate," and similar expressions are intended to identify such
forward-looking statements, but other statements may constitute forward-looking
statements. These statements should be considered subject to various risks and
uncertainties. Such forward-looking statements are made based upon management's
belief as well as assumptions made by, and information currently available to,
management pursuant to "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Our actual results may differ materially from the
results anticipated in forward-looking statements due to a variety of factors.
Such factors are described below and include, without limitation:

o     unanticipated deterioration in the financial condition of borrowers
      resulting in significant increases in loan losses and provisions for those
      losses,

o     increased competition with other financial institutions,

o     lack of sustained growth in the economy in our trade area,

o     rapid fluctuations or unanticipated changes in interest rates, and

o     changes in the legislative and regulatory environment.

Many of such factors are beyond our ability to control or predict. Readers
should not place undue reliance on any such forward-looking statements, which
speak only as to the date made. Readers are advised that the factors listed
above could affect our financial performance and could cause our actual results
for future periods to differ materially from any opinions or statements
expressed with respect to future periods in any current statements. We do not
undertake, and specifically disclaim any obligation, to publicly release the
result of any revisions which may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.

Unless this Form 10-KSB indicates otherwise or the context otherwise requires,
the terms "we," "our," "us," "Atlantic," "Holding Company," or "Oceanside" as
used herein refer collectively to Atlantic BancGroup, Inc. and its subsidiary
Oceanside Bank, which we sometimes refer to as "Oceanside," "our bank
subsidiary," or "our bank." References herein to the fiscal years 2002 and 2003
mean our fiscal years ended December 31, 2002 and 2003, respectively.


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ITEM 1. DESCRIPTION OF BUSINESS.

General

Atlantic BancGroup, Inc. On October 23, 1998, Atlantic BancGroup, Inc. was
incorporated in the State of Florida. On April 3, 1999, the shareholders of
Oceanside Bank approved the Agreement and Plan of Reorganization
("Reorganization") whereby Oceanside became a wholly-owned subsidiary of the
Holding Company. The Reorganization was completed on May 5, 1999. The Holding
Company is a registered bank holding company under the Bank Holding Company Act
of 1956, as amended (the "BHC Act"), and now owns all of the voting shares of
Oceanside. Our corporate headquarters is located at 1315 South Third Street,
Jacksonville Beach, Florida.

Atlantic presently has no significant operations other than Oceanside, our
wholly-owned subsidiary. Oceanside is a state-chartered commercial bank and is
Atlantic's primary source of income. Atlantic does not have trust powers and,
accordingly, no trust services are provided.

As is the case with banking institutions generally, our operations are
materially and significantly influenced by general economic conditions and by
related monetary and fiscal policies of financial institution regulatory
agencies, including the Federal Reserve, the Federal Deposit Insurance
Corporation, and the State of Florida Department of Financial Services. Deposit
flows and costs of funds are influenced by interest rates on competing
investments and general market rates of interest. Lending activities are
affected by the demand for financing of real estate and other types of loans,
which in turn is affected by the interest rates at which such financing may be
offered and other factors affecting local demand and availability of funds. We
face strong competition in attracting deposits (our primary source for funding
loans) and in originating loans.

Oceanside Bank. Oceanside Bank opened July 21, 1997, and operates as a community
bank within our primary service area ("PSA") in East Duval and Northeast St.
Johns Counties. Oceanside provides general commercial banking services to
businesses and individuals. The principal business of Oceanside is to receive
demand and time deposits from the public and to make loans and other
investments. Oceanside operates from a main office located at 1315 South Third
Street, Jacksonville Beach, Florida, and three branch offices located at 560
Atlantic Boulevard, Neptune Beach, Florida; 13799 Beach Boulevard, Jacksonville,
Florida; and 1790 Kernan Boulevard, South, Jacksonville, Florida. The Kernan
Boulevard Branch was opened December 15, 2003, and serves the growing East
Jacksonville market. Oceanside draws most of our customer deposits and conducts
a significant portion of our lending transactions from and within our PSA in the
"Beaches and West Beaches area" of Jacksonville, Florida.

We manage Oceanside as a locally-owned and operated institution that emphasizes
providing prompt, efficient, and personalized service to individuals, small and
medium-sized businesses, professionals and other local organizations. Generally,
customers have one account officer to serve all of their banking needs and have
ready access to senior management when necessary. In addition, our board of
directors is responsible for maintaining a visible profile for, and providing
business to, Oceanside within our local community.

Our principal strategy is to:

o     Expand our commercial and small business customer base within our PSA;


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o     Make real estate mortgage loans within our PSA, as well as throughout
      Duval and the surrounding counties; and

o     Expand our consumer loan base within our PSA.

Our belief is that the most profitable deposit relationships are characterized
by high deposit balances, low frequency of transactions, and low distribution
requirements. Being a community bank with local management, we are
well-positioned to establish these relationships with smaller commercial
customers and households.

Our source of funds for loans and other investments are demand, time, savings,
and other deposits, amortization and repayment of loans, sales to other lenders
or institutions of loans or participations in loans, and borrowings. Our
principal sources of income are interest and fees collected on loans, and to a
lesser extent, interest and dividends collected on other investments. Our
principal expenses are interest paid on savings and other deposits, interest
paid on other borrowings, employee compensation, office expenses, and other
overhead and operational expenses. We offer several deposit accounts, including
demand deposit accounts, negotiable order of withdrawal accounts ("NOW"
accounts), money market accounts, certificates of deposit, and various
retirement accounts. During 2002 and 2003, we also obtained funds from customer
repurchase agreements, which have been classified as other borrowings.

We are a member of an electronic banking network so that our customers may use
the automated teller machines (the "ATMs") of other financial institutions and
we also operate a drive-in teller service and 24-hour depository. As part of the
strategy to offer innovative services to our customers, we offer on-line banking
("Internet Banking") and Dial-a-Bank ("Telephone Banking").

Our efforts are focused on filling the void created by the increasing number of
locally-owned community banks that have been acquired by large regional holding
companies, negatively impacting the personal nature of the delivery, quality,
and availability of banking services in our PSA and surrounding areas.

Lending Activities

We offer a wide range of loans to individuals and small businesses and other
organizations that are located in, or conduct a substantial portion of their
business in, our PSA. At December 31, 2003, our consolidated total loans were
$99.6 million, or 68.4%, of our total consolidated assets. The interest rates
charged on loans vary with the degree of risk, maturity, and amount of the loan,
and are further subject to competitive pressures, money market rates,
availability of funds, and government regulations. We have no foreign loans or
loans for highly leveraged transactions.

Our loan portfolio is concentrated in three major areas: real estate loans,
commercial loans, and consumer and other loans. A majority of our loans are made
on a secured basis. As of December 31, 2003, approximately 66% of our total loan
portfolio consisted of loans secured by mortgages on real estate. Of the total
loans secured by mortgages on real estate, approximately 45% are secured by
nonfarm nonresidential properties and 26% are construction, land development,
and other land loans, secured by real estate. The remaining 29% are secured by
1-4 and multifamily residential properties.


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Our real estate loans are secured by mortgages and consist primarily of loans to
individuals and businesses for the purchase, improvement of, refinance of, or
investment in, real estate and for the construction of single-family residential
units or the development of single-family residential building lots. These real
estate loans may be made at fixed or variable interest rates. We generally do
not make fixed-rate commercial real estate loans for terms exceeding two years.
Loans in excess of two years are generally adjustable rate loans. Residential
real estate loans ordinarily are repayable in monthly installments, based on up
to a 30-year amortization schedule, with variable interest rates.

Our commercial and agricultural loans include loans to individuals and
small-to-medium-sized businesses located primarily in Duval and St. Johns
Counties for working capital, equipment purchases, and various other business
purposes. A majority of commercial loans are secured by real estate, equipment,
or similar assets, but these loans may also be made on an unsecured basis.
Commercial loans may be made at variable or fixed rates of interest. Commercial
lines of credit are typically granted on a one-year basis, with loan covenants.
Other commercial loans with terms or amortization schedules of longer than one
year will normally be made at interest rates which vary with the prime lending
rate and will become payable in full in three to five years. Commercial loans
not secured by real estate amounted to approximately 27% of our total loan
portfolio as of December 31, 2003.

Our consumer loans and other loans consist primarily of loans to individuals for
various consumer purposes, but include some business purpose loans which are
payable on an installment basis. The majority of these loans are for terms of
less than five years and are secured by liens on various personal assets of the
borrowers; however, consumer loans may also be made on an unsecured basis.
Consumer loans are made at fixed and variable interest rates, and are often
based on an amortization schedule of up to five years. Consumer and other loans
represent approximately 7% of our total loan portfolio at December 31, 2003.

Loan originations are derived from a number of sources. Loan originations can be
attributed to direct solicitation by our loan officers, referrals from existing
customers and borrowers, advertising, walk-in customers and, in some instances,
referrals from brokers.

Certain credit risks are inherent in making loans. These include prepayment
risks, risks resulting from uncertainties in the future value of collateral,
risks resulting from changes in economic and industry conditions, and risks
inherent in dealing with individual borrowers. In particular, longer maturities
increase the risk that economic conditions will change and adversely affect
collectibility. We attempt to minimize loan losses through various means. In
particular, on larger loans, we generally rely on the cash flow of a debtor as
the source of repayment and secondarily on the value of the underlying
collateral. In addition, shorter loan terms are utilized in order to reduce the
risk of a decline in the value of such collateral.

Deposit Activities

Deposits are our major source of funds for loans and other investment
activities. In 2003, our regular savings, demand, NOW and money market deposit
accounts comprised approximately 61% of our consolidated total deposits.
Approximately 24% of our consolidated deposits at December 31, 2003, were
certificates of deposit (or time deposits) of less than $100,000. Time deposits
of $100,000 and over made up approximately 15% of our consolidated total
deposits at


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December 31, 2003. Generally, our goal is to maintain the rates paid on our
deposits at a competitive level. We do not currently accept brokered deposits.

Investments

We are permitted to invest a portion of our assets in U.S. Government agency,
state, county, and municipal obligations, certificates of deposit,
collateralized mortgage obligations ("CMO's"), and federal funds sold. Our
investments are managed in relation to loan demand and deposit growth, and are
generally used to provide for the investment of excess funds at minimal risks
while providing liquidity to fund increases in loan demand or to offset
fluctuations in deposits.

Our total investment portfolio may be invested in U.S. Treasury and general
obligations of its agencies and state, county, and municipal obligations because
such securities generally represent a minimal investment risk. Occasionally, we
purchase certificates of deposits of national and state banks. These investments
may exceed $100,000 in any one institution (the limit of FDIC insurance for
deposit accounts). CMO's are secured with Federal National Mortgage Association
("FNMA") and General National Mortgage Association ("GNMA") mortgage-backed
securities and generally have a shorter life than the stated maturity. Federal
funds sold is the excess cash we have available over and above daily cash needs.
We invest this money on an overnight basis with approved correspondent banks.

We monitor changes in financial markets that may affect our portfolio
investments. We also monitor our daily cash position to ensure that all
available funds earn interest at the earliest possible date.

A portion of our investment account is designated as primary reserves and
invested in liquid securities that can be readily converted to cash with minimum
risk of market loss. These investments usually consist of U.S. Treasury
obligations, U.S. government agencies, and federal funds. The remainder of our
investment account (or secondary reserves) may be placed in investment
securities of different types and longer maturities. Daily surplus funds are
sold in the federal funds market for one business day. The maturities of our
securities are staggered whenever possible so as to produce a steady cash flow
in the event we need cash, or economic conditions change to a more favorable
rate environment.

Correspondent Banking

Correspondent banking involves one bank providing services to another bank which
cannot provide those services for itself from an economic, regulatory, or
practical standpoint. We purchase correspondent services offered by larger
banks, including check collections, purchase of federal funds, security
safekeeping, investment services, coin and currency supplies, overline and
liquidity loan participations and sales of loans to or participation with
correspondent banks. We have ongoing banking relationships with several
correspondent banks. We also sell loan participations to correspondent banks
with respect to loans that would exceed our lending limit.


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Interest and Usury

Like other commercial banks, we are subject to state and federal statutes that
affect the interest rates that may be charged on loans. These laws do not, under
present market conditions, deter us from continuing the process of originating
loans.

Supervision and Regulation

Both the Holding Company and Oceanside are subject to comprehensive regulation,
examination, and supervision by the Federal Reserve, the Florida Department of
Financial Services ("Department") and the Federal Deposit Insurance Corporation
("FDIC") and are subject to other laws and regulations applicable to bank
holding companies and banks. Such regulations include limitations on loans to
any single borrower and to our directors, officers, and employees; restrictions
on the opening and closing of branch offices; the maintenance of required
capital and liquidity ratios; the granting of credit under equal and fair
conditions; disclosure of the costs and terms of such credit; and restrictions
as to permissible investments. Both companies are examined periodically by the
Federal Reserve, or the Department and the FDIC, each of whom will submit
periodic reports regarding their financial condition and other matters. These
agencies have a broad range of powers to enforce regulations under their
respective jurisdictions, and to take discretionary actions determined to be for
the protection of the safety and soundness of the Holding Company and Oceanside,
including the issuance of cease and desist orders and the removal of directors
and officers.

Bank Holding Company Regulation. Atlantic is a bank holding company, registered
with the Federal Reserve under the BHC Act. As such, Atlantic is subject to the
supervision, examination and reporting requirements of the BHC Act and the
regulations of the Federal Reserve. The BHC Act requires that a bank holding
company obtain the prior approval of the Federal Reserve before (i) acquiring
direct or indirect ownership or control of more than 5% of the voting shares of
any bank or bank holding company, (ii) acquiring all or substantially all of the
assets of a bank, or (iii) merging or consolidating with any other bank holding
company.

The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be to
substantially lessen competition or to tend to create a monopoly in any section
of the country, or that in any other manner would be in restraint of trade,
unless the anticompetitive effects of the proposed transaction are clearly
outweighed by the public interest in meeting the convenience and needs of the
community to be served. The Federal Reserve is also required to consider the
financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience, and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy and consideration of convenience and needs issues includes the parties'
performance under the CRA. Except as authorized by the Gramm-Leach-Bliley Act of
1999, the BHC Act generally prohibits a bank holding company from engaging in
activities other than banking, or managing or controlling banks or other
permissible subsidiaries, and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those activities
determined by the Federal Reserve to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In determining
whether a particular activity is permissible, the


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Federal Reserve must consider whether the performance of such an activity can
reasonably be expected to produce benefits to the public, such as greater
convenience, increased competition, or gains in efficiency that outweigh
possible adverse effects, such as undue concentration of resources, decreased or
unfair competition, conflicts of interest, or unsound banking practices. For
example, factoring accounts receivable, acquiring or servicing loans, leasing
personal property, conducting securities brokerage activities, performing
certain data processing services, acting as agent or broker in selling credit
life insurance and certain other types of insurance in connection with credit
transactions, and certain insurance underwriting activities have all been
determined by regulations of the Federal Reserve to be permissible activities of
bank holding companies. Despite prior approval, the Federal Reserve has the
power to order a holding company or its subsidiaries to terminate any activity
or terminate its ownership or control of any subsidiary, when it has reasonable
cause to believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.

Gramm-Leach-Bliley Act. Enacted in 1999, the Gramm-Leach-Bliley Act reforms and
modernizes certain areas of financial services regulation. The law permits the
creation of financial services holding companies that can offer a full range of
financial products under a regulatory structure based on the principle of
functional regulation. The legislation eliminates the legal barriers to
affiliations among banks and securities firms, insurance companies, and other
financial services companies. The law also provides financial organizations with
the opportunity to structure these new financial affiliations through a holding
company structure or a financial subsidiary. The law reserves the role of the
Federal Reserve Board as the supervisor for bank holding companies. At the same
time, the law also provides a system of functional regulation which is designed
to utilize the various existing federal and state regulatory bodies. The law
also sets up a process for coordination between the Federal Reserve Board and
the Secretary of the Treasury regarding the approval of new financial activities
for both bank holding companies and national bank financial subsidiaries.

The law also includes a minimum federal standard of financial privacy. Financial
institutions are required to have written privacy policies that must be
disclosed to customers. The disclosure of a financial institution's privacy
policy must take place at the time a customer relationship is established and
not less than annually during the continuation of the relationship. The act also
provides for the functional regulation of bank securities activities. The law
repeals the exemption that banks were afforded from the definition of "broker,"
and replaces it with a set of limited exemptions that allow the continuation of
some historical activities performed by banks. In addition, the act amends the
securities laws to include banks within the general definition of dealer.
Regarding new bank products, the law provides a procedure for handling products
sold by banks that have securities elements. In the area of CRA activities, the
law generally requires that financial institutions address the credit needs of
low-to-moderate income individuals and neighborhoods in the communities in which
they operate. Bank regulators are required to take the CRA ratings of a bank or
of the bank subsidiaries of a holding company into account when acting upon
certain branch and bank merger and acquisition applications filed by the
institution. Under the law, financial holding companies and banks that desire to
engage in new financial activities are required to have satisfactory or better
CRA ratings when they commence the new activity.


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FDIC Regulations. Our deposit accounts are insured by the Bank Insurance Fund
("BIF") of the FDIC up to a maximum of $100,000 per insured depositor. The FDIC
issues regulations, conducts periodic examinations, requires the filing of
reports, and generally supervises the operations of its insured banks. The
approval of the FDIC is required prior to a merger or consolidation or the
establishment or relocation of an office facility. This supervision and
regulation is intended primarily for protection of depositors and not
stockholders.

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%. Under the risk-based standard, capital is classified
into two tiers. Tier 1 capital consists of common shareholders' equity,
excluding the unrealized gain (loss) on available-for-sale securities, minus
certain intangible assets. Tier 2 capital consists of the general allowance for
loan losses except for certain limitations. An institution's qualifying capital
base for purposes of its risk-based capital ratio consists of the sum of its
Tier 1 and Tier 2 capital. The regulatory minimum requirements are 4% for Tier 1
and 8% for total risk-based capital. At December 31, 2003, Oceanside's Tier 1
and total risk-based capital ratios were 9.42% and 10.46%, respectively.

Bank holding companies and banks are also required to maintain capital at a
minimum level based on average total assets, which is known as the leverage
ratio. The minimum requirement for the leverage ratio is 3%, but all but the
highest rated institutions are required to maintain ratios 100 to 200 basis
points above the minimum. At December 31, 2003, Oceanside's leverage ratio was
8.12%.

The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
contains "prompt corrective action" provisions pursuant to which banks are to be
classified into one of five categories based upon capital adequacy, ranging from
"well capitalized" to "critically undercapitalized" and which require (subject
to certain exceptions) the appropriate federal banking agency to take prompt
corrective action with respect to an institution which becomes "significantly
undercapitalized" or "critically undercapitalized."

The FDIC has issued regulations to implement the "prompt corrective action"
provisions of FDICIA. In general, the regulations define the five capital
categories as follows:

o     an institution is "well capitalized" if it has a total risk-based capital
      ratio of 10% or greater, has a Tier 1 risk-based capital ratio of 6% or
      greater, has a leverage ratio of 5% or greater and is not subject to any
      written capital order or directive to meet and maintain a specific capital
      level for any capital measures;

o     an institution is "adequately capitalized" if it has a total risk-based
      capital ratio of 8% or greater, has a Tier 1 risk-based capital ratio of
      4% or greater, and has a leverage ratio of 4% or greater;

o     an institution is "undercapitalized" if it has a total risk-based capital
      ratio of less than 8%, has a Tier 1 risk-based capital ratio that is less
      than 4% or has a leverage ratio that is less than 4%;

o     an institution is "significantly undercapitalized" if it has a total
      risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital
      ratio that is less than 3% or a leverage ratio that is less than 3%; and


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o     an institution is "critically undercapitalized" if its "tangible equity"
      is equal to or less than 2% of its total assets.

The FDIC also, after an opportunity for a hearing, has authority to downgrade an
institution from "well capitalized" to "adequately capitalized" or to subject an
"adequately capitalized" or "undercapitalized" institution to the supervisory
actions applicable to the next lower category, for supervisory concerns.

The "prompt corrective action" provisions of FDICIA also provide that in general
no institution may make a capital distribution if it would cause the institution
to become "undercapitalized." Capital distributions include cash (but not stock)
dividends, stock purchases, redemptions, and other distributions of capital to
the owners of an institution.

FDICIA also contains a number of consumer banking provisions, including
disclosure requirements and substantive contractual limitations with respect to
deposit accounts.

As of December 31, 2003, Oceanside met the capital requirements of a "well
capitalized" institution.

Maximum Legal Interest Rates. Like the laws of many states, Florida law contains
provisions on interest rates that may be charged by banks and other lenders on
certain types of loans. Numerous exceptions exist to the general interest
limitations imposed by Florida law. The relative importance of these interest
limitation laws to the financial operations of Oceanside will vary from time to
time, depending on a number of factors, including conditions in the money
markets, the costs and availability of funds, and prevailing interest rates.

Bank Branching. Banks in Florida are permitted to branch state wide. Such branch
banking, however, is subject to prior approval by the Department and the FDIC.
Any such approval would take into consideration several factors, including the
bank's level of capital, the prospects and economics of the proposed branch
office, and other conditions deemed relevant by the Department and the FDIC for
purposes of determining whether approval should be granted to open a branch
office.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
provides for nationwide interstate banking and branching. Under the law,
interstate acquisitions of banks or bank holding companies in any state by bank
holding companies in any other state is permissible. Interstate branching and
consolidation of existing bank subsidiaries in different states is permissible.
Florida has a law that allows out-of-state bank holding companies (located in
states that allow Florida bank holding companies to acquire banks and bank
holding companies in that state) to acquire Florida banks and Florida bank
holding companies. The law essentially provides for out-of-state entry by
acquisition only (and not by interstate branching) and requires the acquired
Florida bank to have been in existence for at least three years.

Dividend Restrictions. In addition to dividend restrictions placed on Oceanside
by the FDIC based on Oceanside's minimum capital requirements, the Florida
Financial Institutions Code prohibits the declaration of dividends in certain
circumstances. Section 658.37, Florida Statutes, prohibits the declaration of
any dividend until a bank has charged off bad debts, depreciation, and other
worthless assets, and has made provision for reasonably-anticipated future
losses on loans


                                       9
<PAGE>

and other assets. Such dividend is limited to the aggregate of the net profits
of the dividend period combined with a bank's retained net profits of the
preceding two years. A bank may declare a dividend from retained net profits
accruing prior to the preceding two years with the approval of the Department.
However, a bank will be required, prior to the declaration of a dividend on its
common stock, to carry 20% of its net profits for such preceding period as is
covered by the dividend to its surplus fund, until the surplus fund equals at
least the amount of the bank's common and preferred stock then issued and
outstanding. In no event may a bank declare a dividend at any time in which its
net income from the current year, combined with the retained net income from the
preceding two years is a loss or which would cause the capital accounts of the
bank to fall below the minimum amount required by law, regulation, order, or any
written agreement with the Department or the FDIC. We currently do not intend to
pay a cash dividend. Instead, we are using our earnings to support our growth.

Change of Control. Federal law restricts the amount of voting stock of a bank
holding company and a bank that a person may acquire without the prior approval
of banking regulators. The overall effect of such laws is to make it more
difficult to acquire a bank or bank holding company by tender offer or similar
means than another type of corporation. Consequently, shareholders of Atlantic
may be less likely to benefit from the rapid increases in stock prices that may
result from tender offers or similar efforts to acquire control of other
companies. Federal law also imposes restrictions on acquisitions of stock in a
bank holding company and a state bank. Under the federal Change in Bank Control
Act and the regulations thereunder, a person or group must give advance notice
to the Federal Reserve before acquiring control of any bank holding company and
the FDIC before acquiring control of any state bank (such as Oceanside). Upon
receipt of such notice, the FDIC may approve or disapprove the acquisition. The
Change in Bank Control Act creates a rebuttable presumption of control if a
member or group acquires 10% or more of a bank holding company's or state bank's
voting stock, and if one or more other control factors set forth in the Act are
present.

Enforcement Powers. Congress has provided the federal bank regulatory agencies
with an array of powers to enforce laws, rules, regulations and orders. Among
other things, the agencies may require that institutions cease and desist from
certain activities, may preclude persons from participating in the affairs of
insured depository institutions, may suspend or remove deposit insurance, and
may impose civil money penalties against institution-affiliated parties for
certain violations.

Effect of Governmental Policies. Our business and earnings are affected by the
policies of various regulatory authorities of the United States, especially the
Federal Reserve. The Federal Reserve, among other things, regulates the supply
of credit and deals with general economic conditions within the United States.
The instruments of monetary policy employed by the Federal Reserve for those
purposes influence in various ways the overall level of investments, loans,
other extensions of credit, and deposits, and the interest rates paid on
liabilities and received on assets.

Corporate Governance. The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act"),
which became law on July 30, 2002, added new legal requirements for public
companies affecting corporate governance, accounting and corporate reporting.


                                       10
<PAGE>

The Sarbanes-Oxley Act provides for, among other things:

o     a prohibition on personal loans made or arranged by the issuer to its
      directors and executive officers (except for loans made by a bank subject
      to Regulation O);

o     independence requirements for audit committee members;

o     independence requirements for company auditors;

o     certification of financial statements on Forms 10-KSB and 10-QSB reports
      by the chief executive officer and the chief financial officer;

o     the forfeiture by the chief executive officer and the chief financial
      officer of bonuses or other incentive-based compensation and profits from
      the sale of an issuer's securities by such officers in the twelve month
      period following initial publication of any financial statements that
      later require restatement due to corporate misconduct;

o     disclosure of off-balance sheet transactions;

o     two-business day filing requirements for insiders filing Form 4s;

o     disclosure of a code of ethics for financial officers and filing a Form
      8-K for a change in or waiver of such code;

o     the reporting of securities violations "up the ladder" by both in-house
      and outside attorneys;

o     restrictions on the use of non-GAAP financial measures in press releases
      and SEC filings;

o     the formation of a public accounting oversight board; and

o     various increased criminal penalties for violations of securities laws.

The Sarbanes-Oxley Act contains provisions which became effective upon enactment
on July 30, 2002 and provisions that become effective over varying periods. The
SEC has been delegated the task of enacting rules to implement various
provisions. In addition, each of the national stock exchanges has adopted new
corporate governance rules, including rules strengthening director independence
requirements for boards, the adoption of corporate governance codes and charters
for the nominating, corporate governance and audit committees.

USA Patriot Act. As part of the USA Patriot Act, signed into law on October 26,
2001, Congress adopted the International Money Laundering Abatement and
Financial Anti-Terrorism Act of 2001 (the "Act"). The Act authorizes the
Secretary of the Treasury, in consultation with the heads of other government
agencies, to adopt special measures applicable to financial institutions such as
banks, bank holding companies, broker-dealers and insurance companies. Among its
other provisions, the Act requires each financial institution: (i) to establish
an anti-money laundering program; (ii) to establish due diligence policies,
procedures and controls that are reasonably designed to detect and report
instances of money laundering in United States private banking accounts and
correspondent accounts maintained for non-United States persons or their
representatives; and (iii) to avoid establishing, maintaining, administering, or
managing correspondent accounts in the United States for, or on behalf of, a
foreign shell bank that does not have a physical presence in any country. In
addition, the Act expands the circumstances under which funds in a bank account
may be forfeited and requires covered financial institutions to respond under
certain circumstances to requests for information from federal banking agencies
within 120 hours.

Treasury regulations implementing the due diligence requirements were issued in
2002. These regulations required minimum standards to verify customer identity,
encouraged cooperation among financial institutions, federal banking agencies,
and law enforcement authorities regarding


                                       11
<PAGE>

possible money laundering or terrorist activities, prohibited the anonymous use
of "concentration accounts," and required all covered financial institutions to
have in place an anti-money laundering compliance program.

The Act also amended the Bank Holding Company Act and the Bank Merger Act to
require the federal banking agencies to consider the effectiveness of a
financial institution's anti-money laundering activities when reviewing an
application under these acts.

Recent Regulatory Developments

Possible authority for financial holding companies to engage in real estate
brokerage and property management services remained under consideration by
federal banking regulators at the end of 2003. However, renewal of a statutory
moratorium on implementation of regulations granting such authority passed one
house of Congress and was pending in the other house at the end of the year. It
is not possible at present to assess the likelihood of ultimate adoption of
final regulations.

Changes in the federal deposit insurance program were recommended during 2003 by
the FDIC and in the federal budget. A deposit insurance reform bill that would,
among other things, merge the BIF and the SAIF, increase and index deposit
insurance coverage, give the FDIC flexibility in setting premium assessments,
and replace a fixed deposit reserve ratio with a reserve range, was passed by
the House of Representatives in April 2003, but no action on the subject was
taken by the Senate during the remainder of the year. It is not possible to
predict if deposit insurance reform legislation will be enacted, or if enacted,
what its effect will be on our banking subsidiary.

Federal banking regulators continued their preparations for the expected
issuance in mid-2004 by the Basel Committee on Banking Supervision of final
"Basel II" regulatory capital guidelines, which would mandate changes for large
banks in the way in which their risk-based capital requirements are calculated.
The guidelines are widely believed to likely permit significant reductions in
levels of required capital for such banks. It is uncertain at the present time
if our banking subsidiary or the Holding Company will be either required or
permitted to make changes in its regulatory capital structure in accordance with
Basel II guidelines.

The foregoing is a general description of certain provisions of federal and
state law and does not purport to be complete. Proposals to change the laws and
regulations governing the banking industry are frequently introduced in
Congress, in the state legislatures, and before the various bank regulatory
agencies. The likelihood and timing of any such changes and the impact such
changes might have on us cannot be determined at this time.

Primary Service Area

Our PSA encompasses the easternmost portion of Duval County, Florida, and the
northeastern-most portion of St. Johns County, Florida, and is bounded by the
St. Johns River to the north, then west to St. Johns Bluff Road (which is the
westernmost boundary), then south to J. Turner Butler Boulevard. Our PSA then
continues eastward along J. Turner Butler Boulevard. At the Intercoastal
Waterway, our PSA runs south to State Road 210 in northern St. Johns County.


                                       12
<PAGE>

Our PSA includes the communities and municipalities of Ponte Vedra Beach,
Jacksonville Beach, Atlantic Beach, and Neptune Beach, Florida, and the West
Beaches and East Arlington areas of the City of Jacksonville, as well as the
community of Mayport (the home of the Mayport U.S. Naval Air Station). Duval and
St. Johns Counties enjoy an abundant and educated work force, attractive
business environment, favorable cost-of-living comparisons to other metropolitan
areas in the United States, and a good relationship between the private and
public sectors.

In general, commercial real estate in the PSA consists of small shopping centers
and office buildings. The type of residential real estate within our PSA varies,
with a number of condominiums and townhouses located along the beaches, a
greater concentration of apartments in the Mayport area, and single-family
housing dispersed throughout our PSA. New residential growth in our PSA consists
primarily of working professionals with families.

Because we are a local financial institution, all policies and procedures are
tailored to the local market instead of to statewide or regional markets. This
is not the case for the majority of the financial institutions currently
operating in our PSA.

We believe that our PSA is a desirable market in which to operate an
independent, locally-owned bank. Furthermore, since we have a large base of
local shareholders and communicate frequently with our shareholders, additional
opportunities exist for marketing that might not be found with other financial
institutions in our PSA. Our broad base of shareholders from the beaches and
surrounding areas of Jacksonville, and the favorable economic environment of our
PSA, should provide us with the opportunity to gain market share.

Competition

The banking industry in general, and our market in particular, is characterized
by significant competition for both deposits and lending opportunities. In our
market area, we compete with other commercial banks, savings and loan
associations, credit unions, finance companies, mutual funds, insurance
companies, brokerage and investment banking firms, and various other nonbank
competitors. Competition for deposits may have the effect of increasing the
rates of interest we will pay on deposits, which would increase our cost of
money and possibly reduce our net earnings. Competition for loans may have the
effect of lowering the rate of interest we will receive on our loans, which
would lower our return on invested assets and possibly reduce our net earnings.
Many of our competitors have been in existence for a significantly longer period
of time than us, are larger and have greater financial and other resources and
lending limits than us, and may offer certain services that we do not provide at
this time. However, we feel the market is rich with opportunity to provide
tailor-made custom banking products and services that cannot be provided by the
large institutions that offer many banking products and services on an
impersonal basis. As larger financial institutions have in recent years acquired
community banks, we are able to cater to those customers looking for more
personalized service.

Our profitability depends upon our ability to compete in this market area. At
the present time, we are unable to predict to what degree competition may
adversely affect our financial condition and operating results.


                                       13
<PAGE>

Our response to this highly competitive environment dictates that we:

o     review and act upon loan requests quickly with a locally-based loan
      committee;

o     maintain flexible, but prudent lending policies;

o     personalize service with emphasis on establishing long-term banking
      relationships with our customers; and

o     maintain a strong ratio of employees to customers to enhance the level of
      service.

Common Stock

We have 10,000,000 shares of our $0.01 par value common stock authorized. As of
February 29, 2004, there were 1,247,516 shares outstanding. Holders of our
common stock are entitled to one vote for each share held of record on all
matters to be voted on by stockholders. Upon liquidation, dissolution, or
winding-up, holders of our common stock are entitled to receive pro rata all
assets remaining legally available for distribution to shareholders. The holders
of common stock have no right to cumulate their votes in the election of
directors. The common stock has no preemptive or other subscription rights, and
there are no conversion rights or redemption or sinking fund provisions with
respect to such shares. All of the outstanding shares of common stock are fully
paid and non-assessable.

Warrants

Subscribers to the initial offering of Atlantic's common stock received warrants
to purchase common stock ("warrants") equal to the number of shares of common
stock purchased. Each warrant gave the holder the right to purchase one share of
common stock at $10.00 per share at any time during the five year period
beginning on the date of the opening of Oceanside. During 2002, all outstanding
warrants were either exercised or expired.

Preferred Stock

In addition to the 10,000,000 shares of authorized common stock, our Articles of
Incorporation authorize up to 2,000,000 shares of preferred stock. The board of
directors is further authorized to establish designations, powers, preferences,
rights, and other terms for preferred stock by resolution. No shares of
preferred stock have been issued.

Indemnification of Directors and Officers

Our Bylaws afford indemnification rights to our officers and directors to the
fullest extent permitted or required by the Florida Business Corporation Act.

Under Section 607.0850 of the Florida Business Corporation Act, officers and
directors of a Florida corporation may be entitled to indemnification by the
corporation against liability incurred in connection with any threatened,
pending, or completed action, suit, or other type of proceeding, whether civil,
criminal, administrative, or investigative and whether formal or informal;
provided, however, that such officer or director acted in good faith and in a
manner reasonably believed to be in, or not opposed to, the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such conduct was unlawful. Such indemnification
includes obligations to pay a judgment, settlement, penalty,


                                       14
<PAGE>

fine, and expenses actually and reasonably incurred with respect to a
proceeding. In addition, Florida law provides that officers and directors shall
be indemnified by a Florida corporation against expenses actually and reasonably
incurred by such officer or director, to the extent that such officer or
director has been successful on the merits or otherwise in defense of any
proceeding (as defined in Section 607.0850) or in defense of any claim, issue,
or matter therein.

In addition, Section 607.0831 of the Florida Business Corporation Act provides
that a director is not personally liable for monetary damages to a corporation
or any other person for any statement, vote, decision, or failure to act,
regarding corporate management or policy, by a director, unless such director
breached or failed to perform such duties as a director and such breach or
failure to perform constitutes:

o     a violation of the criminal law, unless the director had reasonable cause
      to believe the conduct was lawful or had no reasonable cause to believe
      the conduct was unlawful;

o     a transaction from which the director derived an improper personal
      benefit, either directly or indirectly;

o     a circumstance involving a director's liability for unlawful distributions
      under the Florida Business Corporation Act;

o     in proceedings by or in the right of the corporation to procure a judgment
      or by or in the right of a shareholder, conscious disregard for the best
      interest of the corporation, or willful misconduct; or

o     in a proceeding by or in the right of someone other than the corporation
      or a shareholder, recklessness or an act or omission which was committed
      in bad faith or with malicious purpose or in a manner exhibiting wanton
      and willful disregard of human rights, safety, or property.

Employees

At December 31, 2003, we had approximately 45 full-time employees and 5
part-time employees. During 2003, we averaged 44 full-time equivalent employees
as compared with 42 in 2002, an increase of approximately 5%. With the opening
of our Kernan Boulevard branch in the fourth quarter of 2003, our staffing
levels increased to 47 full-time equivalents at December 31, 2003. No
significant changes in the number of our full-time employees are currently
anticipated. Because we believe that one of the primary deficiencies of large
regional banks is the constant turnover of personnel and therefore the lack of
continuing personal relationships with local customers, our goal is to maintain
a competently trained staff of local bankers who have settled in the community
on a permanent basis. To maintain a skilled and knowledgeable staff, we allocate
funds for continuing on-the-job and educational training, and employees are
encouraged to enroll in various banking courses and other seminars to improve
their overall knowledge of the banking business.

The employees are not represented by a collective bargaining unit. We consider
relations with employees to be good.


                                       15
<PAGE>

ITEM 2. DESCRIPTION OF PROPERTIES.

On October 29, 1996, Oceanside purchased from an unaffiliated entity the
two-story, 3,100 square-foot building at 1315 South Third Street, Jacksonville
Beach, Florida, as our main office ("Main Office"). The Main Office includes
three inside teller stations, four drive-up teller windows, an automated teller
machine, and on-site parking. The Main Office is a former Barnett Bank branch
office. Oceanside purchased the real property for $850,000 and used a portion of
the proceeds of the initial offering of Atlantic's common stock to add 2,200
square feet to the facility. Oceanside originally acquired the Main Office with
funds drawn on a line of credit with Columbus Bank and Trust Company, which was
repaid out of the proceeds of Atlantic's initial offering. Improvements totaling
approximately $341,000 have been made through December 31, 2003.

On June 3, 1998, Oceanside purchased from SouthTrust Bank, N.A., a 1,968 square
foot building and real estate located at 560 Atlantic Boulevard, Neptune Beach,
Florida. This facility was formerly a branch office of SouthTrust Bank, N.A.
Oceanside purchased this building for $427,000 and spent $103,000 on renovations
and upgrades. This facility includes two offices, three inside teller windows,
general lobby space, three drive-up teller windows, an ATM, and on-site parking.
There is no outstanding mortgage loan on this property.

On August 13, 1999, Atlantic purchased from an unaffiliated individual, a 4,960
square foot office building located at 710 Third Street North, Jacksonville
Beach, Florida. The building served as the location for Oceanside's operations
center, Oceanside's mortgage department, and holding company offices, until the
branch at 13799 Beach Boulevard was opened in 2001 (see below). The building was
sold in 2002, netting proceeds of $538,000 and a gain of $16,000.

On September 27, 2000, Oceanside executed a lease for our third banking
location, which opened in the third quarter of 2001. This branch is located at
13799 Beach Boulevard, Jacksonville, Florida. The lease, which commenced upon
execution, covers approximately 9,000 square feet. In addition to the branch,
other operations of Atlantic and Oceanside were relocated to this facility. Rent
commenced in May 2002, which was one year from the date of completion of the
landlord's work, and expires ten years thereafter, with two five-year renewal
options. No rent was paid in the first year after completion of the landlord's
work. Annual rent in years two through ten will be $156,000 (subject to
inflation adjustments). Building improvements totaled $859,000.

On August 22, 2002, Oceanside executed a lease for our newest branch location,
which opened December 15, 2003. This branch is located at the intersection of
Kernan and Atlantic Boulevards, at 1790 Kernan Boulevard, Jacksonville, Florida.
The lease covers approximately 42,000 square feet of land, with the square
footage of the building at approximately 3,200 square feet at a cost of
approximately $1,345,000 for building improvements. Rent commenced in September
2003. The lease is for twenty years with two ten-year renewal options. Annual
rent in years two through twenty will be $75,000 (subject to inflation
adjustments).

We believe all of our facilities are in good condition and well-maintained.


                                       16
<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

We are periodically parties to or otherwise involved in legal proceedings
arising in the normal course of business, such as claims to enforce liens,
claims involving the making and servicing of real property loans, and other
issues incident to our operations. We do not believe that there are any pending
or threatened proceedings against us, which, if determined adversely, would have
a material effect on our consolidated financial position.

On September 11, 2003, a customer of Oceanside Bank filed suit against Oceanside
Bank in the Fourth Judicial Circuit Court in Duval County, Florida. The suit
alleges that we improperly obtained the cross-collateralization of certain
property and seeks to declare that cross-collateralization null-and-void.
Although we expect to prevail in this litigation, we do not anticipate suffering
a material loss if we are unsuccessful in our defense.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of Atlantic's security holders during the
fourth quarter of the year ended December 31, 2003.

                                     PART II

ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
     MATTERS

Prior to October 28, 1999, the shares of Atlantic common stock were not actively
traded, and such trading activity, as it occurred, took place in privately
negotiated transactions. On October 28, 1999, Atlantic's common stock was
approved for quotation on the Over-the-Counter Bulletin Board and on August 29,
2003, Atlantic common stock commenced its listing on the NASDAQ SmallCap Market
under the symbol "ATBC." During 2003 and 2002, the reported periodic high and
low quotes during each quarter follow:

<TABLE>
<CAPTION>
                       2003                                    2002
       -------------------------------------   -------------------------------------
       4th Qtr   3rd Qtr   2nd Qtr   1st Qtr   4th Qtr   3rd Qtr   2nd Qtr   1st Qtr
       -------   -------   -------   -------   -------   -------   -------   -------
<S>    <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
High   $ 18.50   $ 19.00   $ 35.00   $ 15.10   $ 13.50   $ 13.35   $ 13.50   $ 12.60
Low    $ 16.93   $ 16.02   $ 14.25   $ 13.00   $ 12.50   $ 12.25   $ 12.25   $ 11.95
</TABLE>

Please note that information above represents offers made to buy our stock and
may not represent actual transactions or sales. The source of data used to
prepare the above chart was taken from historical prices provided by Commodity
Systems, Inc.

Dividends

As of February 29, 2004, there were approximately 650 holders of record of our
common stock. We anticipate that for the foreseeable future, earnings will be
retained for business development and growth. Accordingly, we do not anticipate
paying cash dividends on our common stock in the foreseeable future. The payment
of future dividends will be at the sole discretion of the board


                                       17
<PAGE>

of directors and will depend on, among other things, future earnings, capital
requirements, and our general financial and business condition.

Furthermore, the ability to pay dividends to our stockholders depends primarily
on dividends received from our banking subsidiary, Oceanside. Oceanside's
ability to pay dividends is limited by federal and state banking regulations
based upon Oceanside's profitability and other factors. At December 31, 2003,
retained earnings of Oceanside totaling approximately $539,000 were available to
pay dividends to the Holding Company in order to maintain Oceanside's current
regulatory capital classification.

ITEM 6. MANAGEMENT'S DISCUSSION AND PLAN OF OPERATIONS.

Management's discussion and analysis of earnings and related financial data are
presented herein to assist investors in understanding our financial condition
and results of operations for the periods ended, December 31, 2003 and 2002.
This discussion should be read in conjunction with the financial statements and
related footnotes presented elsewhere herein.


                                       18
<PAGE>

Selected Financial Data (dollars and shares in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                   At or for the
                                                                              Period Ended December 31,
                                                             --------------------------------------------------------
                                                               2003        2002        2001        2000        1999
                                                             --------    --------    --------    --------    --------
<S>                                                          <C>         <C>         <C>         <C>         <C>
Statements of Operations Data:
     Total interest income                                   $  6,837    $  6,331    $  6,082    $  5,277    $  3,704
     Total interest expense                                     1,790       1,894       2,558       2,217       1,210
     Net interest income before provision for loan losses       5,047       4,437       3,524       3,060       2,494
     Provision for loan losses                                    319         196         108          --         221
     Net interest income after provision for loan losses        4,728       4,241       3,416       3,060       2,273
     Noninterest income                                           880         916         826         547         362
     Noninterest expense                                        4,158       4,010       3,379       2,929       2,167
     Cumulative effect of a change in accounting principle         --          --          --          --         (59)
     Income tax provision (benefit)                               463         294         226         226         (90)
     Net income                                                   987         853         637         452         499

Statements of Financial Condition Data:
     Total assets                                            $145,571    $112,251    $ 83,901    $ 74,375    $ 54,161
     Earning assets                                           124,668     101,900      74,408      64,319      47,144
     Investment securities                                     22,976      16,988      12,237       7,344       5,938
     Loans, net (before allowance for loan losses)             99,482      79,107      61,604      49,983      40,935
     Allowance for loan losses                                  1,220         970         766         682         738
     Deposit accounts                                         113,378      83,524      73,493      65,002      43,889
     Stockholders' equity                                      12,920      12,154       6,967       6,020       5,404

Share Data:
     Earnings per share (1)
         Basic                                               $   0.79    $   0.87    $   0.87    $   0.63    $   0.70
         Fully diluted                                       $   0.79    $   0.83    $   0.70    $   0.56    $   0.62
     Book value per share (period end) (1)                   $  10.36    $   9.74    $  11.08    $   7.49    $   6.73
     Common shares outstanding (period end) (1)                 1,248       1,248         837         805         803
     Weighted average shares outstanding (1)
         Basic                                                  1,248         980         728         715         714
         Fully diluted                                          1,248       1,025         906         803         803

Performance Ratios:
     Return on average assets                                    0.78%       0.86%       0.79%       0.70%       1.06%
     Return on average equity                                    7.80        8.93        9.77        8.18        9.83
     Interest-rate spread during the period                      4.05        4.61        4.28        4.31        5.03
     Net interest margin                                         4.46        5.09        5.06        5.34        5.96
     Noninterest expenses to average assets                      3.28        4.02        4.20        4.56        4.59

Asset Quality Ratios:
     Allowance for loan losses to period end loans               1.23%       1.23%       1.24%       1.36%       1.80%
     Net charge-offs to average loans                            0.08       -0.01        0.04        0.12        0.01
     Nonperforming assets to period end loans                    0.04        0.01        0.03          --          --
     Nonperforming assets to period end total assets             0.03        0.01        0.03          --          --

Capital and Liquidity Ratios (Oceanside):
     Average equity to average assets (Consolidated)             9.98%       9.58%       8.11%       8.59%      10.75%
     Leverage (Oceanside)                                        8.12        9.00        8.67        8.83       11.09
     Risk-based capital (Oceanside):
         Tier 1                                                  9.42        9.67        9.75       10.48       12.54
         Total                                                  10.46       10.73       10.83       11.64       13.79
     Average loans to average deposits (Consolidated)           89.22       88.53       79.82       83.16       80.92
</TABLE>
         (1) Adjusted for stock dividend in 2003.


                                       19
<PAGE>

General

As of December 31, 2003, we had grown to approximately $145.6 million in total
assets, $99.6 million in total loans, $113.4 million in deposits, and $12.9
million in stockholders' equity.

How We Earn Income. As stated elsewhere herein, our results of operations are
primarily dependent upon the results of operations of Oceanside. Oceanside
conducts commercial banking business consisting of attracting deposits from the
general public and applying those funds to the origination of commercial,
consumer, and real estate loans (including commercial loans collateralized by
real estate). Profitability depends primarily on net interest income, which is
the difference between interest income generated from interest-earning assets
(i.e., loans and investments) less the interest expense incurred on
interest-bearing liabilities (i.e., customer deposits and borrowed funds). Net
interest income is affected by the relative amounts of interest-earning assets
and interest-bearing liabilities, and the interest rate earned and paid on these
balances. Net interest income is dependent upon Oceanside's interest-rate spread
which is the difference between the average yield earned on our interest-earning
assets and the average rate paid on our interest-bearing liabilities. When
interest-earning assets approximate or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The interest
rate spread is impacted by interest rates, deposit flows, and loan demand.
Additionally, and to a lesser extent, Oceanside's profitability is affected by
such factors as the level of noninterest income and expenses, the provision for
loan losses, and the effective tax rate. Noninterest income consists primarily
of service fees on deposit accounts and mortgage banking operations. Noninterest
expense consists of compensation and employee benefits, occupancy and equipment
expenses, data processing costs, and other operating expenses.

Critical Accounting Policies and Use of Significant Estimates. Our consolidated
financial statements include the accounts of the Holding Company and our banking
subsidiary. All significant intercompany accounts and transactions have been
eliminated in consolidation. The accounting and reporting policies conform with
accounting principles generally accepted in the United States of America and to
general practices within the banking industry.

Regulatory Environment. We are subject to regulations of certain federal and
state agencies and, accordingly, it is periodically examined by those regulatory
authorities. As a consequence of the extensive regulation of commercial banking
activities, our business is particularly susceptible to being affected by
federal legislation and regulations.

Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. Material estimates
that are particularly susceptible to significant change in the near term relate
to the determination of the allowance for loan losses.

The determination of the adequacy of the allowance for loan losses is based on
estimates that may be affected by significant changes in the economic
environment and market conditions. In connection with the determination of the
estimated losses on loans, management obtains independent appraisals for
significant collateral.


                                       20
<PAGE>

Our loans are generally secured by specific items of collateral including real
property, consumer assets, and business assets. Although we have a diversified
loan portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent on local, state, and national economic conditions.

While management uses available information to recognize losses on loans,
further reductions in the carrying amounts of loans may be necessary based on
changes in economic conditions. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the estimated losses on
loans. Such agencies may require our banking subsidiary to recognize additional
losses based on their judgments about information available to them at the time
of their examination.

Allowance for Loan Losses. The allowance for loan losses is established as
losses are estimated to have occurred through a provision for loan losses
charged to earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.

Interest Rate Risk. Our asset base is exposed to risk including the risk
resulting from changes in interest rates and changes in the timing of cash
flows. Management monitors the effect of such risks by considering the mismatch
of the maturities of its assets and liabilities in the current interest rate
environment and the sensitivity of assets and liabilities to changes in interest
rates. We have considered the effect of significant increases and decreases in
interest rates and believe such changes, if they occurred, would be manageable
and would not affect our ability to hold assets as planned. However, we are
exposed to significant market risk in the event of significant and prolonged
interest rate changes.

                              Results of Operations

Net Income

Net income in 2003 was $987,000 versus $853,000 in 2002, an increase of
$134,000, or 15.7%. The primary reasons for the change in net income in 2003
over 2002 were as follows:

o     Our income from average earning assets grew at an 8% pace as a result of
      increases in average earning assets of 29%, partially offset by the
      declining rate environment throughout 2003.

o     The declining rate environment in 2003 was most pronounced on our cost of
      funds, which declined to 1.96% from 2.60%. All types of interest-bearing
      liabilities showed significant declines in the average yields, with an
      overall decline in interest expense of $104,000, or 5.5%, based on average
      balances in 2003.


                                       21
<PAGE>

Table 1.1 - Rate/Volume Analysis (dollars in thousands):

<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                                  ----------------------------
                                                            2003                                2002
                                              ---------------------------------    -------------------------------
                                                          Interest    Average                 Interest    Average
                                              Average        and       Yield/      Average       and       Yield/
                                              Balance     Dividends     Rate       Balance    Dividends     Rate
                                              --------    ---------   ---------    --------   ---------   --------
<S>                                           <C>         <C>            <C>       <C>        <C>           <C>
Earning assets
     Loans (1)                                $ 88,922    $   6,087        6.85%   $ 70,845   $   5,566       7.86%
     Investment securities and deposits (2)     21,915          695        3.72      14,335         696       5.69
     Other interest-earning assets (3)           4,904           55        1.12       4,303          69       1.60
                                              --------    ---------                --------   ---------

         Total interest-earning assets (2)     115,741        6,837        6.01%     89,483       6,331       7.21%
                                                          ---------                           ---------

Noninterest-earning assets                      11,065                               10,265
                                              --------                             --------

         Total assets                         $126,806                             $ 99,748
                                              ========                             ========

Interest-bearing liabilities
     Demand deposits                          $ 30,940          368        1.19%   $ 27,028         455       1.68%
     Savings                                     4,723           36        0.76       3,509          60       1.71
     Certificates of deposit                    41,814        1,103        2.64      32,190       1,148       3.57
     Other borrowings                           13,959          283        2.03      10,164         231       2.27
                                              --------    ---------                --------   ---------

         Total interest-bearing liabilities     91,436        1,790        1.96%     72,891       1,894       2.60%
                                                          ---------                           ---------

Noninterest-bearing liabilities                 22,717                               17,300
Stockholders' equity                            12,653                                9,557
                                              --------                             --------

         Total liabilities and
           stockholders' equity               $126,806                             $ 99,748
                                              ========                             ========

Net interest income                                        $  5,047                            $  4,437
                                                           ========                            ========

Interest-rate spread (4)                                                   4.05%                              4.61%
                                                                       ========                           ========

Net interest margin (5) (2)                                                4.46%                              5.09%
                                                                       ========                           ========

Ratio of average interest-earning assets
  to average interest-bearing liabilities       126.58%                              122.76%
                                              ========                             ========
</TABLE>

----------
(1)   Average loan balances include nonaccrual loans. Interest income on
      nonaccrual loans has been included. Average loans are net of deferred
      fees.

(2)   Tax-exempt income has been adjusted to a tax-equivalent basis using an
      incremental rate of 37.6%.

(3)   Includes federal funds sold.

(4)   Interest-rate spread represents the difference between the average yield
      on interest-earning assets and the average cost of interest-bearing
      liabilities.

(5)   Net interest margin is net interest income divided by average
      interest-earning assets.


                                       22
<PAGE>

Table 1.2 - Rate/Volume Analysis (dollars in thousands):

<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                                           2003 vs. 2002
                                                     Increase (Decrease) Due to
                                              ---------------------------------------
                                                                    Rate/
                                               Rate      Volume    Volume      Total
                                              -------    -------   -------    -------
<S>                                           <C>        <C>       <C>        <C>
Interest-earning assets:
     Loans, net                               $  (716)   $ 1,420   $  (183)   $   521
     Investment securities and other stock       (283)       431      (149)        (1)
     Other interest-earning assets                (21)        10        (3)       (14)
                                              -------    -------   -------    -------

         Total interest-earning assets         (1,020)     1,861      (335)       506
                                              -------    -------   -------    -------

Interest-bearing liabilities:
     Demand deposits                             (135)        66       (18)       (87)
     Savings                                      (32)        21       (13)       (24)
     Certificates of deposit                     (298)       343       (90)       (45)
     Other borrowings                             (26)        86        (8)        52
                                              -------    -------   -------    -------

         Total interest-bearing liabilities      (491)       516      (129)      (104)
                                              -------    -------   -------    -------

Net interest income                           $  (529)   $ 1,345   $  (206)   $   610
                                              =======    =======   =======    =======
</TABLE>

<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                                           2002 vs. 2001
                                                     Increase (Decrease) Due to
                                              ---------------------------------------
                                                                    Rate/
                                               Rate      Volume    Volume      Total
                                              -------    -------   -------    -------
<S>                                           <C>        <C>       <C>        <C>
Interest-earning assets:
     Loans, net                               $  (811)   $ 1,368   $  (212)   $   345
     Investment securities and other stock       (110)       218       (39)        69
     Other interest-earning assets               (150)       (42)       27       (165)
                                              -------    -------   -------    -------

         Total interest-earning assets         (1,071)     1,544      (224)       249
                                              -------    -------   -------    -------

Interest-bearing liabilities:
     Demand deposits                             (192)        60       (18)      (150)
     Savings                                       (9)        43       (12)        22
     Certificates of deposit                     (588)       141       (49)      (496)
     Other borrowings                            (147)       447      (340)       (40)
                                              -------    -------   -------    -------

         Total interest-bearing liabilities      (936)       691      (419)      (664)
                                              -------    -------   -------    -------

Net interest income                           $  (135)   $   853   $   195    $   913
                                              =======    =======   =======    =======
</TABLE>


                                       23
<PAGE>

Table 2.1 - Weighted Average Yield or Rate:

                                            For the Year Ended December 31,
                                            -------------------------------
                                                 2003             2002
                                                 ----             ----

Interest-earning assets:
         Loans, net                              6.85%            7.86%
         Investment securities                   3.72             5.69
         Other interest-earning assets           1.12             1.60
         All interest-earning assets             6.01             7.21
Interest-bearing liabilities:
         NOW deposits                            0.33             0.60
         Money market deposits                   1.53             2.00
         Savings                                 0.76             1.71
         Certificates of deposit                 2.64             3.57
         Other borrowings                        2.03             2.27
         All interest-bearing liabilities        1.96             2.60
Interest-rate spread                             4.05             4.61
Net interest margin                              4.46             5.09

Comparison of Years Ended December 31, 2003 and 2002

Net Interest Income

Net interest income which is our primary source of operating income, and is the
difference between interest earned on loans and securities and interest paid on
deposits and other funding sources. The factors that influence net interest
income include changes in interest rates and changes in the volume and mix of
assets and liability balances.

Net interest income was $5,047,000 and $4,437,000 for 2003 and 2002,
respectively, an increase of 13.7% from 2002 to 2003, which was due to the
increase in average earning assets of 29.3% and the favorable impact from
declining interest rates on cost of funds. The average balances, interest income
and expense, and the average rates earned and paid for assets and liabilities
are found in the preceding Tables 1.1 and 2.1.

During 2003 and 2002, the average yield (on a tax-equivalent basis) on earning
assets was 6.01% and 7.21%, respectively, while the average cost of funds was
1.96% in 2003 and 2.60% in 2002. Our net interest margin declined from 5.09% in
2002 to 4.46% in 2003, reflecting trends in interest rates earned versus rates
paid, which had an unfavorable inpact of 63 basis points. Declines in the mix of
average loans to total average earning assets (76.8% in 2003 and 79.2% in 2002)
and shifts in interest-bearing demand deposits and other borrowings as shown in
the following Table 2.2 also contributed to a lower net interest margin.

For 2003, the average loan-to-interest-bearing deposit ratio increased to 114.8%
from 112.9% in 2002, which reflects the shift in the mix of average earning
assets and interest-bearing deposits as follows:


                                       24
<PAGE>

Table 2.2 - Change in Deposit Mix (dollars in thousands):

<TABLE>
<CAPTION>
                                                             At December 31,
                                               ------------------------------------------
                                                      2003                   2002
                                               -------------------    -------------------
                                                          Percent                Percent
                                               Average      to        Average      to
                                               Balance     Total      Balance     Total
                                               --------   --------    --------   --------
<S>                                            <C>        <C>         <C>        <C>
Interest-earning assets:
     Loans, net                                $ 88,922       76.8%   $ 70,845       79.2%
     Investment securities                       21,915       18.9%     14,335       16.0%
     Other                                        4,904        4.3%      4,303        4.8%
                                               --------   --------    --------   --------

         Total interest-earning assets         $115,741      100.0%   $ 89,483      100.0%
                                               ========   ========    ========   ========

Interest-bearing deposits:
     Demand deposits                           $ 30,940       27.1%   $ 27,028       29.9%
     Savings                                      4,723        4.1%      3,509        3.9%
     Certificates of deposit                     41,814       36.7%     32,190       35.7%
                                               --------   --------    --------   --------

         Total interest-bearing deposits         77,477       67.9%     62,727       69.5%

Noninterest-bearing deposits                     22,717       19.9%     17,300       19.2%
                                               --------   --------    --------   --------

         Total deposits                        $100,194       87.8%   $ 80,027       88.7%
                                               ========               ========

Other borrowings                               $ 13,959       12.2%   $ 10,164       11.3%
                                               ========   --------    ========   --------

         Total deposits and other borrowings   $114,153      100.0%   $ 90,191      100.0%
                                               ========   ========    ========   ========
</TABLE>

Other borrowings increased from an average of $10,164,000 in 2002 to $13,959,000
in 2003, reflecting the growth in customer repurchase agreements. Consistent
with downward trends in interest rates, the cost of funds for other borrowings
declined from 2.27% in 2002 to 2.03% in 2003. Customer repurchase agreements
averaged $11.3 million in 2003 and $7.4 million in 2002. Interest paid on
customer repurchase agreements totaled $136,000 in 2003 and $76,000 in 2002, an
average cost of funds of 1.21% and 1.00%, respectively.

Provision for Loan Losses

A provision for loan losses of $319,000 was recorded in 2003, which reflects
management's assessment of the needed level of the allowance for loan losses.
The increase in the provision for loan losses in 2003 over the 2002 level of
$196,000 reflects the growth in average loans of 25.5% and the increase in net
charge-offs experienced during 2003. Net charge-offs in 2003 were $69,000 as
compared with net recoveries of $8,000 in 2002, a swing of $77,000.


                                       25
<PAGE>

Noninterest Income

Noninterest income declined $36,000, or 3.9%, to $880,000 in 2003 from $916,000
in 2002. A summary of changes follows:

o     Service charges on deposit accounts grew at a pace of 4.7%, which is
      consistent with the growth in the number of deposit accounts of
      approximately 7% from year end 2002 to 2003.

o     Mortgage banking fees declined $30,000, or 14.1%, as mortgage loan
      originations slowed from $20.9 million in 2002 to $15.9 million in 2003, a
      decline of approximately 24%. The recent slowdown reflects the
      stabilization of new home sales and interest rates, and the decreased
      demand for refinancing of mortgages.

o     Other income declined $30,000, or 16.0%, due principally to lower earning
      rates used for increases in cash values for life insurance policies
      funding the indexed retirement plans for certain officers and directors,
      which resulted in $21,000 less income in 2003. Also, we recorded a gain of
      $16,000 on the sale of the former operations building in 2002.

Noninterest Expenses

Total noninterest expenses increased to $4,158,000 in 2003 compared to
$4,010,000 for 2002. This increase of $148,000, or 3.7%, reflects higher
expenses due to growth in our operations. The more significant increases during
2003 follow:

o     Salaries and employee benefits grew 8% reflecting the increase in the
      average number of full-time equivalent employees of approximately 4.8% and
      increases of $52,000 in group and workers compensation insurance.

o     Expenses of bank premises and fixed assets and other operating expenses
      declined slightly in 2003.

o     Higher costs for corporate governance, including professional fees and
      audit costs, increased $40,000, or 19%. Pension expenses declined $87,000
      in 2003 (in 2002, pension expenses were based on preliminary estimates
      that were refined in 2003). Other expenses were generally consistent
      between years.

Loans Receivable

Average loans receivable were $88,922,000 for the year 2003 as compared to
$70,845,000 for 2002, an increase of 25.5%. Management believes the growth in
loans was directly attributable to the growth in our branch network, community
acceptance, the reputations of our lending team, and favorable economic
conditions in the market area. Table 3 below provides an analysis of our loan
distribution at the end of 2003 and 2002. Loans that are secured by real estate
include residential and nonresidential mortgages, and home equity loans to
individuals.


                                       26
<PAGE>

Table 3 - Loan Portfolio (dollars in thousands):

                                               For the Year
                                            Ended December 31,
                                           --------------------
                                             2003        2002
                                           --------    --------

Real estate loans                          $ 66,125    $ 50,580
Commercial                                   26,812      21,519
Consumer and other loans                      6,622       7,105
                                           --------    --------
         Total loan portfolio                99,559      79,204
Less:
         Less, deferred fees                    (77)        (97)
         Less, allowance for loan losses     (1,220)       (970)
                                           --------    --------

              Loans, net                   $ 98,262    $ 78,137
                                           ========    ========

The following table shows the maturity of loans receivable.

Table 4.1 - Contractual Loan Maturities at December 31, 2003 (dollars in
thousands):

<TABLE>
<CAPTION>
                                                       1 Year   1 Through    After
                                                      or Less    5 Years    5 Years    Total
                                                      -------   ---------   -------   -------
<S>                                                   <C>       <C>         <C>       <C>
Real estate loans                                     $ 5,185   $  16,549   $44,391   $66,125
Commercial and agricultural loans                       6,821       8,683    11,308    26,812
Consumer and other loans                                1,972       3,777       873     6,622
                                                      -------   ---------   -------   -------

        Total loan portfolio                          $13,978   $  29,009   $56,572   $99,559
                                                      =======   =========   =======   =======

Loans with maturities over one year:
        Fixed rate                                                                    $21,566
        Variable rate                                                                  64,015
                                                                                      -------

             Total maturities greater than one year                                   $85,581
                                                                                      =======
</TABLE>

Table 4.2 - Loan Maturities or Next Repricing Date at December 31, 2003 (dollars
in thousands):

      Three months or less                      $36,642
      Over three months through twelve months    11,658
      Over one year through three years          31,220
      Over three through five years              12,431
      Over five years                             7,608
                                                -------
                                                $99,559
                                                =======


                                       27
<PAGE>

Table 5 - Loans Originated and Repaid (dollars in thousands):

                                          Years Ended December 31,
                                          ------------------------
                                              2003        2002
                                            --------    --------

Originations:
        Real estate loans                   $ 30,769    $ 18,127
        Commercial and agricultural loans      7,981       9,083
        Consumer and other loans               2,172       3,731
                                            --------    --------
             Total                            40,922      30,941
Principal reductions                         (20,567)    (13,464)
                                            --------    --------

Increase in total loans                     $ 20,355    $ 17,477
                                            ========    ========

Classification of Assets

Generally, interest on loans accrues and is credited to income based upon the
principal balance outstanding. It is management's policy to discontinue the
accrual of interest income and classify a loan as nonaccrual when principal or
interest is past due 90 days or more and the loan is not adequately
collateralized, or when in the opinion of management, principal or interest is
not likely to be paid in accordance with the terms of the obligation. Interest
accrued and unpaid at the time a loan is placed on nonaccrual status is charged
against interest income. Subsequent payments received are applied to the
outstanding principal balance. Consumer installment loans are generally
charged-off after 90 days of delinquency unless adequately collateralized and in
the process of collection. Loans are not returned to accrual status until
principal and interest payments are brought current and future payments appear
reasonably certain.

Real estate acquired as a result of foreclosure, or by deed in lieu of
foreclosure, is classified as other real estate owned ("OREO"). OREO properties
are recorded at the lower of cost or fair value less estimated selling costs,
and the estimated loss, if any, is charged to the allowance for loan losses at
the time the real estate is transferred to OREO. Further allowances for losses
in OREO are recorded at the time management believes additional deterioration in
value has occurred.

Management has adopted Statement of Financial Accounting Standards No. 114,
Accounting by Creditors for Impairment of a Loan ("SFAS No. 114"), which
considers a loan to be impaired if it is probable that we will be unable to
collect all amounts due under the contractual terms of the loan agreement. If a
loan is considered impaired, its value generally should be measured based on the
present value of expected cash flows discounted at the loan's effective interest
rate. As a practical expedient, however, the loan's value may be based on:

o     the loan's market price; or

o     the fair value of the loan's collateral, less discounted estimated costs
      to sell, if the collateral is expected to be the sole source of repayment.

If the value of the loan is less than the recorded investment in the loan, a
loss should be recognized by recording a valuation allowance and a corresponding
increase to the provision for loan losses charged to operating expenses.


                                       28
<PAGE>

Situations may occur where:

o     We receive physical possession of a debtor's assets regardless of whether
      formal foreclosure proceedings have been initiated or completed; or

o     the debtor has effectively surrendered control of the underlying
      collateral in contemplation of foreclosure.

These situations are referred to as "in-substance foreclosures." SFAS No. 114
recognizes the practical problems of accounting for the operation of an asset
the creditor does not possess, and states that a loan for which foreclosure is
probable should continue to be accounted for as a loan.

At December 31, 2003 and 2002, loans past due for 30 days or more (but less than
89 days) totaled $176,000 and $47,000, respectively. At December 31, 2003,
management had classified fourteen loans totaling approximately $1.1 million as
substandard, as compared with ten substandard loans totaling $1.1 million at
December 31, 2002.

At December 31, 2003, one loan totaling $1,000 was considered impaired or
nonaccrual. At December 31, 2003, two loans totaling $15,000 were past due 90
days or more but was well-secured and in process of collection.

Allowance for Loan Losses

The amount charged to operations and the related balance in the allowance for
loan losses is based upon periodic evaluations of the loan portfolio by
management. These evaluations consider several factors including but not limited
to, current economic conditions, loan portfolio composition, prior credit loss
experience, trends in portfolio volume, and management's estimation of future
potential losses. Management believes that the allowance for loan losses is
adequate. Table 6 is an analysis of the allowance for loan losses for 2003 and
2002.

Table 6 - Allowance for Loan Losses (dollars in thousands):

                                    2003        2002
                                  --------    --------

Balance, at beginning of period   $    970    $    766
Provision for loan losses              319         196
Loans charged off                      (73)        (50)
Recoveries                               4          58
                                  --------    --------

Balance, at end of period         $  1,220    $    970
                                  ========    ========

The specific allocations of the allowance for loan losses are based on
management's evaluation of the risks inherent in the specific portfolios for the
dates indicated. Amounts in a particular category may be used to absorb losses
if another category allocation proves to be inadequate.


                                       29
<PAGE>

Table 7 reflects the allocations of the allowance for the years ended 2003 and
2002.

Table 7 - Allocation of Allowance for Loan Losses (dollars in thousands):

<TABLE>
<CAPTION>
                                                      At December 31,
                                    --------------------------------------------------
                                              2003                       2002
                                    -----------------------    -----------------------
                                              % of Loans to              % of Loans to
                                    Amount     Total Loans     Amount     Total Loans
                                    ------    -------------    ------    -------------
<S>                                 <C>           <C>          <C>           <C>
Real estate loans                   $   43         66%         $   95         64%
Commercial and agricultural loans      375         27             172         27
Consumer and other loans                15          7              14          9
Unallocated                            787         --             689         --
                                    ------        ---          ------        ---

                                    $1,220        100%         $  970        100%
                                    ======        ===          ======        ===
</TABLE>

Highly leveraged transactions generally include loans and commitments made in
connection with recapitalizations, acquisitions, and leveraged buyouts, and
result in the borrower's debt-to-total assets ratio exceeding 75%. At December
31, 2003 and 2002, there were no loans qualified as highly leveraged
transactions. Loans restructured and in compliance with modified terms are
commonly referred to as "troubled debt restructurings." At December 31, 2003 and
2002, we had no restructured loans.

Securities

Financial institutions classify their investment securities as either
"held-to-maturity" or "available-for-sale." Securities classified as
held-to-maturity are carried at amortized or accreted cost and include those
securities that a bank has the intent and ability to hold to maturity.
Securities classified as available-for-sale, which are those securities that a
bank intends to hold for an indefinite amount of time, but not necessarily to
maturity, are carried at fair value with the unrealized holding gains or losses,
net of taxes, reported as a component of the stockholders' equity on a bank's
balance sheet. Tables 8.1 and 8.2 set forth the carrying amount of securities at
the dates indicated.

Table 8.1 - Carrying Value of Investment Securities (dollars in thousands):

                                                        At December 31,
                                                      -------------------
                                                        2003       2002
                                                      --------   --------

Securities available-for-sale:
         Mortgage-backed securities (GNMA and FNMA)   $ 19,077   $ 13,084

Securities held-to-maturity:
         State, county, and municipal bonds              3,899      3,904
                                                      --------   --------

Balance, end of year                                  $ 22,976   $ 16,988
                                                      ========   ========


                                       30
<PAGE>

Table 8.2 - Investment Securities at Amortized Cost (dollars in thousands):

                                                       At December 31,
                                                     -------------------
                                                       2003       2002
                                                     --------   --------

Securities available-for-sale:
        Mortgage-backed securities (GNMA and FNMA)   $ 19,161   $ 12,814

Securities held-to-maturity:
         State, county, and municipal bonds             3,899      3,904
                                                     --------   --------

Balance, end of year                                 $ 23,060   $ 16,718
                                                     ========   ========

Tables 9.1 and 9.2 set forth the maturities (excluding principal paydowns on
mortgage-backed securities) and the weighted average yields of securities by
contractual maturities at December 31, 2003 and 2002.

Table 9.1 - Analysis of Investment Securities Available-for-Sale (dollars in
thousands):

<TABLE>
<CAPTION>
                                     Due in One          Due in Five           Due in Ten
                                    to Five Years        to Ten Years         Years or More            Total
                                  -----------------    -----------------    -----------------    -----------------
                                            Average              Average              Average              Average
                                  Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield
                                  -------   -------    -------   -------    -------   -------    -------   -------
<S>                               <C>          <C>     <C>          <C>     <C>          <C>     <C>          <C>
At December 31, 2003:
     Mortgage-backed securities
         (GNMA and FNMA)          $12,566      3.08%   $ 1,881      4.27%   $ 4,630      4.78%   $19,077      3.61%
                                  =======              =======              =======              =======

At December 31, 2002:
     Mortgage-backed securities
         (GNMA and FNMA)          $ 3,486      3.75%   $ 3,812      4.11%   $ 5,786      5.73%   $13,084      4.73%
                                  =======              =======              =======              =======
</TABLE>

Table 9.2 - Analysis of Investment Securities Held-to-Maturity (dollars in
thousands):

<TABLE>
<CAPTION>
                              Due in One          Due in Five           Due in Ten
                             to Five Years        to Ten Years         Years or More            Total
                           -----------------    -----------------    -----------------    -----------------
                                     Average              Average              Average              Average
                           Amount     Yield     Amount     Yield     Amount     Yield     Amount     Yield
                           -------   -------    -------   -------    -------   -------    -------   -------
<S>                        <C>          <C>     <C>          <C>     <C>          <C>     <C>          <C>

At December 31, 2003:
     State, county, and
         municipal bonds   $    --      0.00%   $    --      0.00%   $ 3,899      5.10%   $ 3,899      5.10%
                           =======              =======              =======              =======

At December 31, 2002:
     State, county, and
         municipal bonds   $    --      0.00%   $    --      0.00%   $ 3,904      5.10%   $ 3,904      5.10%
                           =======              =======              =======              =======
</TABLE>


                                       31
<PAGE>

Deposits

Deposits are the major source of our funds for lending and other investment
purposes. Deposits are attracted principally from within our PSA through the
offering of a broad variety of deposit instruments including checking accounts,
money market accounts, regular savings accounts, term certificate accounts
(including "jumbo" certificates in denominations of $100,000 or more) and
retirement savings plans.

Maturity terms, service charges and withdrawal penalties are established by
management on a periodic basis. The determination of rates and terms is
predicated on loan funding and liquidity requirements, rates paid by
competitors, growth goals, and federal regulations.

The FDIC regulations limit the ability of certain insured depository
institutions to accept, renew, or rollover deposits by offering rates of
interest which are significantly higher than the prevailing rates of interest on
deposits offered by other insured depository institutions having the same type
of charter in such depository institutions' normal market area. Under these
regulations, "well capitalized" depository institutions may accept, renew, or
rollover deposits at such rates without restriction, "adequately capitalized"
depository institutions may accept, renew or rollover deposits at such rates
with a waiver from the FDIC (subject to certain restrictions on payments of
rates), and "undercapitalized" depository institutions may not accept, renew or
rollover deposits at such rates. The regulations contemplate that the
definitions of "well capitalized," "adequately capitalized" and
"undercapitalized" will be the same as the definitions adopted by the agencies
to implement the prompt corrective action provisions of applicable law. See
"Description of Business/Supervision and Regulation." As of December 31, 2003,
Oceanside met the definition of a "well capitalized" depository institution.

Our primary source of funds is deposit accounts that include both interest- and
noninterest-bearing demand, savings, and time deposits under $100,000. At
December 31, 2003 and 2002, these core deposits accounted for approximately 85%
of all deposits. At December 31, 2003, time deposits under $100,000 accounted
for approximately 29% of these core deposits as compared with money market
deposits at 27% and noninterest-bearing demand deposits at 26%. This compares
with 2002 levels of 31%, 30%, and 26%, respectively. At both December 31, 2003
and 2002, jumbo certificates of deposit (time deposits $100,000 and greater)
represented approximately 15% of total deposits. At December 31, 2003 and 2002,
time deposits outstanding in an individual amount of $100,000 or more totaled
$16,671,000 and $12,854,000, respectively. The maturities of these deposits are
reflected in Table 12 herein.

Interest-bearing demand accounts, consisting of NOW and money market accounts,
averaged $30,940,000 for the year ended 2003 and $27,028,000 for the year ended
2002, or approximately 31% and 34% of average total deposits in 2003 and 2002,
respectively.


                                       32
<PAGE>

Table 10 - Distribution of Deposit Accounts by Type (dollars in thousands):

<TABLE>
<CAPTION>
                                                          At December 31,
                                            ------------------------------------------
                                                    2003                   2002
                                            -------------------    -------------------
                                              % of                   % of
                                             Amount    Deposits     Amount    Deposits
                                            --------   --------    --------   --------
<S>                                         <C>          <C>       <C>          <C>
Demand deposits                             $ 25,474      22.5%    $ 18,172      21.8%
NOW deposits                                  11,675      10.3        5,552       6.6
Money market deposits                         26,539      23.4       21,215      25.4
Savings deposits                               5,428       4.8        4,107       4.9
                                            --------     -----     --------     -----

        Subtotal                              69,116      61.0       49,046      58.7
                                            --------     -----     --------     -----

Certificates of deposit:
        1.00% - 1.99%                             98       0.1        3,500       4.2
        2.00% - 2.99%                         18,136      16.0       14,671      17.6
        3.00% - 3.99%                         19,169      16.9        9,131      10.9
        4.00% - 4.99%                          2,951       2.6        5,762       6.9
        5.00% - 5.99%                          3,362       3.0        1,244       1.5
        6.00% - 6.99%                            546       0.4          170       0.2
                                            --------     -----     --------     -----

        Total certificates of deposit (1)     44,262      39.0       34,478      41.3
                                            --------     -----     --------     -----

        Total deposits                      $113,378     100.0%    $ 83,524     100.0%
                                            ========     =====     ========     =====
</TABLE>

----------
(1)   Includes individual retirement accounts ("IRAs") totaling $2,218,000 and
      $2,007,000 in 2003 and 2002, respectively, all of which are in the form of
      certificates of deposit.

Table 11 - Average Deposits and Average Rates (dollars in thousands):

                                        At December 31,
                          ------------------------------------------
                                 2003                   2002
                          -------------------    -------------------
                          Average     Average    Average     Average
                          Balance      Rate      Balance      Rate
                          --------   --------    --------   --------

Demand, money market
    and NOW deposits      $ 53,657       0.69%   $ 44,328       1.03%
Savings deposits             4,723       0.76       3,509       1.71
Certificates of deposit     41,814       2.64      32,190       3.57
                          --------               --------

        Total deposits    $100,194       1.50%   $ 80,027       2.08%
                          ========               ========


                                       33
<PAGE>

Table 12 - Maturities of Time Deposits of $100,000 or more (dollars in
thousands):

                                           At December 31,
                                         -------------------
                                           2003       2002
                                         --------   --------

Due in three months or less              $  6,923   $  3,450
Over three through twelve months            8,019      6,556
Over twelve months through three years      1,167      2,745
Over three years                              562        103
                                         --------   --------

                                         $ 16,671   $ 12,854
                                         ========   ========

Table 13 - Certificates of Deposits by Rate and Maturity Date (dollars in
thousands):

<TABLE>
<CAPTION>
                                                          Year Ending December 31,
                                      ---------------------------------------------------------------
                                        2004       2005       2006       2007       2008      Total
                                      --------   --------   --------   --------   --------   --------
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>
At December 31, 2003:
     0.00% - 0.99%                    $     98   $     --   $     --   $     --   $     --   $     98
     1.00% - 1.99%                      17,532        599          5         --         --     18,136
     2.00% - 2.99%                      12,452      5,431      1,091         10        185     19,169
     3.00% - 3.99%                       1,233        283        198        752        485      2,951
     4.00% - 4.99%                       2,082         98         37        797        348      3,362
     5.00% - 5.99%                          12         26         --        508         --        546
                                      --------   --------   --------   --------   --------   --------

      Total certificates of deposit   $ 33,409   $  6,437   $  1,331   $  2,067   $  1,018   $ 44,262
                                      ========   ========   ========   ========   ========   ========
</TABLE>

<TABLE>
<CAPTION>
                                                          Year Ending December 31,
                                      ---------------------------------------------------------------
                                        2003       2004       2005       2006       2007      Total
                                      --------   --------   --------   --------   --------   --------
<S>                                   <C>        <C>        <C>        <C>        <C>        <C>
At December 31, 2002:
    1.00% - 1.99%                     $  3,500   $     --   $     --   $     --   $     --   $  3,500
    2.00% - 2.99%                       14,086        585         --         --         --     14,671
    3.00% - 3.99%                        7,575      1,187        335         --         34      9,131
    4.00% - 4.99%                        2,563      2,034        315         36        814      5,762
    5.00% - 5.99%                          706         12         26         --        500      1,244
    6.00% - 6.99%                          170         --         --         --         --        170
                                      --------   --------   --------   --------   --------   --------

      Total certificates of deposit   $ 28,600   $  3,818   $    676   $     36   $  1,348   $ 34,478
                                      ========   ========   ========   ========   ========   ========
</TABLE>

Bank Liquidity and Capital Resources

Liquidity. Our principal source of funds comes from Oceanside's operations,
including net increases in deposits, principal and interest payments on loans,
and proceeds from sales and maturities of investment securities. We use our
capital resources principally to fund existing and continuing loan commitments,
purchase investment securities, and meet other contractual obligations.

Liquidity management involves meeting the funds flow requirements of customers
who may either be depositors wanting to withdraw funds, or borrowers needing
assurance that sufficient funds will be available to meet their credit needs.
Liquid assets consist of vault cash, securities, and principal paydowns of other
earning assets.


                                       34
<PAGE>

Our principal sources of asset liquidity are federal funds sold and the
securities portfolio, including principal paydowns from mortgage-backed
securities. In 2003 and 2002, principal paydowns from mortgage-backed securities
totaled $8,851,000 and $3,828,000, respectively.

Other sources of funds are principal paydowns and maturities in the loan
portfolio. The loan maturity schedule (Table 4) illustrates the maturities of
loans receivable at December 31, 2003. We also have sources of liability
liquidity that include core deposits as previously discussed and access to
borrowed funds including overnight federal funds, lines of credit, and customer
repurchase agreements. At December 31, 2003 and 2002, our liquidity ratio of
liquid assets to transaction deposit accounts was 27.0% and 26.4%, respectively.
Management believes that our liquidity is sufficient to meet our anticipated
needs.

Table 14.1 - Contractual Commitments (dollars in thousands)

                                                        At December 31,
                                                      -------------------
                                                        2003       2002
                                                      --------   --------

Commitments to originate loans
     Residential real estate                          $  4,493   $  3,527
     Commercial real estate, construction, and land
       development secured by real estate                8,723      3,346
     Other unused commitments                            4,434      7,152
                                                      --------   --------
         Total commitments to originate loans           17,650     14,025
Financial standby letters of credit                      1,614      1,298
                                                      --------   --------
         Total contractual commitments                $ 19,264   $ 15,323
                                                      ========   ========

Table 14.2 - Contractual Obligations (dollars in thousands)

<TABLE>
<CAPTION>
                                      1 Year   1 Through   Years 4     After
                                     or Less    3 Years     and 5     5 Years     Total
                                     --------   --------   --------   --------   --------
<S>                                  <C>        <C>        <C>        <C>        <C>
Deposits without a stated maturity   $ 69,116   $     --   $     --   $     --   $ 69,116
Certificates of deposit and
   other time deposits                 33,409      7,768      3,085         --     44,262
Short-term borrowings                  16,500         --         --         --     16,500
Federal Home Loan Bank advances            --      2,300         --         --      2,300
Operating leases                          231        462        462      1,464      2,619
                                     --------   --------   --------   --------   --------
     Total contractual obligations   $119,256   $ 10,530   $  3,547   $  1,464   $134,797
                                     ========   ========   ========   ========   ========
</TABLE>


                                       35
<PAGE>

Other Borrowings

A summary follows (dollars in thousands):

                                December 31,
                            -------------------
                              2003       2002
                            --------   --------

Repurchase agreement        $ 16,500   $ 13,573
FHLB of Atlanta advances       2,300      2,300
Revolving lines of credit         --         --
                            --------   --------

                            $ 18,800   $ 15,873
                            ========   ========

FHLB of Atlanta Advances. Atlantic has obtained an advance from FHLB of
$2,300,000 collateralized by Atlantic's FHLB capital stock and a blanket lien on
eligible wholly-owned residential (1-4 units) first mortgage loans totaling
approximately $3.1 million. This advance matures on November 17, 2005, and has a
fixed interest rate at 6.05%.

Customer Repurchase Agreements. Atlantic has sold securities under an agreement
to repurchase with a par value of $16,321,000 and a fair value of $16,501,000,
which effectively collateralizes overnight borrowings totaling $16,500,000. The
interest rate on this overnight borrowing was 1.25%.

Table 14.3 - Federal Funds Purchased and Customer Repurchase Agreements (dollars
in thousands)

                                                             At December 31,
                                                          --------------------
                                                            2003        2002
                                                          --------    --------

Balance at year end                                       $ 16,500    $ 13,573
Weighted average interest rate at year end                    1.25%       1.25%
Maximum amount outstanding at month end during the year   $ 21,009    $ 15,753
Average amount outstanding during the year                $ 11,659    $  7,601
Weighted average interest rate during the year                1.22%       1.08%

Management believes that we have adequate resources to fund all our commitments.
If so desired, we can adjust the rates and terms on certificates of deposit and
other deposit accounts to attract deposits and fund additional commitments.

Capital. We place a significant emphasis on maintaining a strong capital base.
The capital resources consist of two major components of regulatory capital,
stockholders' equity and the allowance for loan losses. Current capital
guidelines issued by federal regulatory authorities require a company to meet
minimum risk-based capital ratios in an effort to make regulatory capital more
responsive to the risk exposure related to a company's on and off-balance sheet
items.

Risk-based capital guidelines re-define the components of capital, categorize
assets into risk classes, and include certain off-balance sheet items in the
calculation of capital requirements. The components of risk-based capital are
segregated as Tier I and Tier II capital. Tier I capital is


                                       36
<PAGE>

composed of total stockholders' equity reduced by goodwill and other intangible
assets. Tier II capital is comprised of the allowance for loan losses and any
qualifying debt obligations.

Regulators also have adopted minimum requirements of 4% of Tier I capital and 8%
of risk-adjusted assets in total capital.

We are also subject to leverage capital requirements. This requirement compares
capital (using the definition of Tier I capital) to balance sheet assets and is
intended to supplement the risk-based capital ratio in measuring capital
adequacy. The guidelines set a minimum leverage ratio of 3% for depository
institutions that are highly rated in terms of safety and soundness, and which
are not experiencing or anticipating any significant growth. Other depository
institutions are expected to maintain capital levels of at least 1% or 2% above
the minimum. Oceanside's actual capital amounts, capital ratios, and leverage
ratios at December 31, 2003 and 2002, are reflected in the table below.

Table 15.1 - Capital Ratios - Oceanside Only (dollars in thousands):

                                                        At December 31,
                                                     --------------------
                                                       2003        2002
                                                     --------    --------

Tier I capital
    Stockholders' equity                             $ 10,970    $  8,920
    Less, intangible assets                                --          --
                                                     --------    --------
                                                       10,970       8,920

Tier II capital
    Allowable portion of allowance for loan losses      1,220         970
                                                     --------    --------

Total risk-based capital                             $ 12,190    $  9,890
                                                     ========    ========

Total risk-weighted assets                           $116,505    $ 92,213
                                                     ========    ========

    Tier I risk-based capital ratio                      9.42%       9.67%
                                                     ========    ========

    Total risk-based capital ratio                      10.46%      10.73%
                                                     ========    ========

Average total assets for leverage capital purposes   $135,068    $ 99,119
                                                     ========    ========

    Tier 1 leverage ratio                                8.12%       9.00%
                                                     ========    ========

Note: Any unrealized appreciation and depreciation on securities
available-for-sale was excluded from regulatory capital components of risk-based
capital and leverage ratios.

During 2003 and 2002, the Holding Company used a portion of the proceeds from
warrants exercised to provide additional capital to Oceanside totaling $1.0
million and $1.1 million, respectively. This amount has been eliminated in
consolidation.


                                       37
<PAGE>

Table 15.2 - Capital Analysis:

                                                     At December 31,
                                                     ---------------
                                                     2003      2002
                                                     ----      ----

Average equity as a percentage of average assets     9.98%     9.58%
Equity to total assets at end of year                8.88     10.83
Return on average equity                             7.80      8.93
Return on average assets                             0.78      0.86
Noninterest expenses to average assets               3.28      4.02

In 1996, Oceanside commenced the sale of units (consisting of one share of
common stock and one warrant to purchase one share of common stock at a price of
$10.00 per share) at a price of $10.00 per unit.

During July 2002, the remaining unexercised warrants expired. A summary of the
activity for our warrants follows:

      Warrants Exercised
      ------------------
      1997                                                              300
      1998                                                               20
      1999                                                              600
      2000                                                            1,500
      2001                                                           32,190
      2002                                                          410,567
                                                                    -------
      Total warrants exercised                                      445,177
      Unexercised warrants expired                                  149,253
                                                                    -------

      Total warrants issued during initial stock offering           594,430
                                                                    =======

Stockholders' equity is adjusted for the effect of unrealized appreciation or
depreciation, net of tax, on securities classified as available-for-sale. As of
December 31, 2003, stockholders' equity increased $760,000 from December 31,
2002, as a result of the net income of $987,000, a decrease of $220,000 in
unrealized holding gains (losses) on available-for-sale securities, and a $1,000
reduction for the 2003 stock dividend. The return on average equity for the
years ended December 31, 2003 and 2002, totaled 7.80% and 8.93%, respectively.
The decline in return on average equity is attributable primarily to the
increase in capital from the warrant proceeds.

On May 20, 2003, Atlantic's Board of Directors declared a stock dividend payable
at a rate of 20% of shares issued and outstanding to stockholders of record May
30, 2003, payable on or before June 16, 2003. Cash in lieu of fractional shares
was paid at the rate of $15.10 per share, which was the estimated fair market
value at that time. The total cash paid in lieu of fractional shares was less
than $200.

Interest Rate Sensitivity

Our operations are subject to risk resulting from interest rate fluctuations to
the extent that there is a difference between the amount of interest-earning
assets and the amount of interest-bearing liabilities that are
prepaid/withdrawn, mature, or reprice in specified periods.


                                       38
<PAGE>

The principal objective of asset/liability management activities is to provide
consistently higher levels of net interest income while maintaining acceptable
levels of interest rate and liquidity risk and facilitating our funding needs.
We utilize an interest rate sensitivity model as the primary quantitative tool
in measuring the amount of interest rate risk that is present. The traditional
maturity "gap" analysis, which reflects the volume difference between interest
rate sensitive assets and liabilities during a given time period, is reviewed
regularly by management. A positive gap occurs when the amount of interest
sensitive assets exceeds interest sensitive liabilities. This position would
contribute positively to net income in a rising interest rate environment.
Conversely, if the balance sheet has more liabilities repricing than assets, the
balance sheet is liability sensitive or negatively gapped. We continue to
monitor sensitivity in order to avoid overexposure to changing interest rates.

Another method utilized to review our interest sensitivity position is through
"simulation." In simulation, we project the future net interest streams in light
of the current gap position. Various interest rate scenarios are used to measure
levels of interest income associated with potential changes in our operating
environment. We, however, cannot measure levels of interest income associated
with potential changes in our operating environment, or the direction of
interest rates, or how the mix of assets and liabilities will change. The use of
this information will help formulate strategies to minimize the unfavorable
effect on net interest income caused by interest rate changes.

Our operations do not subject us to foreign currency exchange or commodity price
risk. Also, we do not use interest rate swaps, caps, or other hedging
transactions. Our overall sensitivity to interest rate risk is low due to our
non-complex balance sheet. We have implemented several strategies to manage
interest rate risk that include originating most residential mortgages for a
third party lender, increasing the volume of variable rate commercial loans,
requiring interest rate calls on commercial loans, and maintaining a short
repricing maturity for a significant portion of our investment portfolio.

The following table provides information about our financial instruments that
are sensitive to changes in interest rates. For securities, loans, and deposits,
the table presents principal cash flows and related weighted average interest
rates by maturity dates or repricing frequency. We have no market risk sensitive
instruments entered into for trading purposes.


                                       39
<PAGE>

Table 16 - Interest Rate Sensitivity at December 31, 2003 (dollars in
thousands):

<TABLE>
<CAPTION>
                                               Under      3 to 12                        Over
                                            3 Months       Months    1 - 5 Years      5 Years         Total
                                           ---------    ---------    -----------    ---------     ---------
<S>                                        <C>          <C>          <C>            <C>           <C>
Federal funds sold                         $   1,878    $      --    $        --    $      --     $   1,878
Interest-bearing deposits in other banks           7           --             --           --             7
Loans(1)                                      36,642       11,658         43,651        7,608        99,559
Securities(2)                                     79          153         14,266        8,478        22,976
                                           ---------    ---------    -----------    ---------     ---------

Total rate-sensitive assets                $  38,606    $  11,811    $    57,917    $  16,086     $ 124,420
                                           =========    =========    ===========    =========     =========

Money market and NOW accounts(2)           $  26,539    $      --    $        --    $  11,675     $  38,214
Savings accounts (2)                              --           --             --        5,428         5,428
Certificates of deposit (2)                   14,400       19,009          7,768        3,085        44,262
                                           ---------    ---------    -----------    ---------     ---------

Total rate-sensitive liabilities           $  40,939    $  19,009    $     7,768    $  20,188     $  87,904
                                           =========    =========    ===========    =========     =========

Gap (repricing differences)                $  (2,333)   $  (7,198)   $    50,149    $  (4,102)    $  36,516
                                           =========    =========    ===========    =========     =========

Cumulative Gap                             $  (2,333)   $  (9,531)   $    40,618    $  36,516
                                           =========    =========    ===========    =========

Cumulative Gap/total assets                    -1.60%       -6.55%         27.90%       25.08%
                                           =========    =========    ===========    =========

Total assets                                                                                      $ 145,571
                                                                                                  =========
</TABLE>

----------
(1)   In preparing the table above, adjustable-rate loans were included in the
      period in which the interest rates are next scheduled to adjust rather
      than in the period in which the loans mature. Fixed-rate loans were
      scheduled according to their contractual maturities. Nonaccrual loans are
      excluded if material.

(2)   Excludes noninterest-bearing deposit accounts. Money market deposits were
      regarded as maturing immediately, and other core deposits were assumed to
      mature in the over 5-year category. All other time deposits were scheduled
      through the maturity or repricing dates. Investments were scheduled
      through their contractual, repricing, or principal payment dates. Certain
      mortgage-backed investments with varying maturities over three years were
      included in the 1-5 year category.

Recent Accounting Pronouncements Impacting Future Periods

In December 2003, the FASB issued FASB Interpretation No. 46 (revised December
2003), Consolidation of Variable Interest Entities , which addresses how a
business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46,
Consolidation of Variable Interest Entities, which was issued in January 2003.
Atlantic will be required to apply FIN 46R to all entities subject to this
Interpretation no later than the end of the first reporting period that ends
after December 15, 2004. This interpretation must be applied to those entities
that are considered to be special-purpose entities no later than as of the end
of the first reporting period that ends after December 15, 2003.

For any variable interest entities (VIEs) that must be consolidated under FIN
46R that were created before January 1, 2004, the assets, liabilities and
noncontrolling interests of the VIE initially would be measured at their
carrying amounts with any difference between the net amount added to the balance
sheet and any previously recognized interest being recognized as the cumulative
effect of an accounting change. If determining the carrying amounts is not
practicable, fair value at the date FIN 46R first applies may be used to measure
the assets,


                                       40
<PAGE>

liabilities and noncontrolling interest of the VIE. The application of this
Interpretation is not expected to have a material effect on our consolidated
financial statements.

In December 2003, the Accounting Standards Executive Committee issued Statement
of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a
Transfer ("SOP 03-3"). SOP 03-3 addresses accounting for differences between
contractual cash flows and cash flows expected to be collected from an
investor's initial investment in loans or debt securities (loans) acquired in a
transfer if those differences are attributable, at least in part, to credit
quality. SOP 03-3 includes loans acquired in purchase business combinations, but
does not apply to loans originated by the entity. SOP 03-3 is effective for
loans acquired in fiscal years beginning after December 15, 2004, although
earlier adoption is encouraged. The adoption of this new statement of position
is not expected to have a material impact on our consolidated financial position
or results of operations.

Impact of Inflation

The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurements of financial position and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, substantially all
of the assets and liabilities of Atlantic are monetary in nature. As a result,
interest rates have a more significant impact on our performance than the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or with the same magnitude as the prices of goods and
services, since such prices are affected by inflation to a larger extent than
interest rates. As discussed previously, management seeks to manage the
relationships between interest sensitive assets and liabilities in order to
protect against wide interest rate fluctuations, including those resulting from
inflation.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss from adverse changes in market prices and rates.
Our market risk arises primarily from interest rate risk inherent in our lending
and deposit taking activities. We have little or no risk related to trading
accounts, commodities or foreign exchange.

We do not engage in trading or hedging activities and do not invest in
interest-rate derivatives or enter into interest rate swaps. We actively monitor
and manage our interest rate risk exposure. The primary objective in managing
interest-rate risk is to limit, within established guidelines, the adverse
impact of changes in interest rates on our net interest income and capital,
while adjusting our asset-liability structure to obtain the maximum yield-cost
spread on that structure. We rely primarily on the asset-liability structure to
control interest rate risk. However, a sudden and substantial increase in
interest rates could adversely impact our earnings, to the extent that the
interest rates borne by assets and liabilities do not change at the same speed,
to the same extent, or on the same basis.


                                       41
<PAGE>
ITEM 7.  FINANCIAL STATEMENTS.

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Atlantic BancGroup, Inc. and Subsidiary
Jacksonville Beach, Florida

We have audited the consolidated statements of financial condition of Atlantic
BancGroup, Inc. and Subsidiary ("Atlantic") as of December 31, 2003 and 2002,
and the related consolidated statements of operations and comprehensive income,
cash flows, and stockholders' equity, for each of the two years in the period
ended December 31, 2003. These consolidated financial statements are the
responsibility of Atlantic's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Atlantic as of
December 31, 2003 and 2002, and the results of its consolidated operations and
its cash flows for each of the two years in the period ended December 31, 2003,
in conformity with accounting principles generally accepted in the United States
of America.

/s/ Stevens, Powell & Company, P.A.

STEVENS, POWELL & COMPANY, P.A.
Jacksonville, Florida
January 30, 2004


                                     - 42 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                            ----------------------------
                                                                                2003            2002
                                                                            ------------    ------------
                                                                   (Dollars in Thousands, Except Per Share Data)
                                                 ASSETS
<S>                                                                         <C>             <C>
Cash and cash equivalents:
     Cash and due from banks                                                $     15,314    $      6,291
     Federal funds sold                                                            1,878           5,588
                                                                            ------------    ------------
         Total cash and cash equivalents                                          17,192          11,879
Securities available-for-sale                                                     19,077          13,084
Securities held-to-maturity (fair value of $4,197 in 2003 and
    $4,096 in 2002)                                                                3,899           3,904
Stock in FHLB and correspondent bank, at cost                                        332             217
Loans, net                                                                        98,262          78,137
Facilities                                                                         4,179           2,834
Accrued interest receivable                                                          476             430
Deferred income taxes                                                                601             327
Other assets                                                                       1,553           1,439
                                                                            ------------    ------------

         Total assets                                                       $    145,571    $    112,251
                                                                            ============    ============

                                              LIABILITIES

Deposits:
     Noninterest-bearing demand deposits                                    $     25,474    $     18,172
     Interest-bearing deposits                                                    11,675           5,552
     Money market deposits                                                        26,539          21,215
     Savings deposits                                                              5,428           4,107
     Time deposits, $100,000 and over                                             16,671          12,854
     Other time deposits                                                          27,591          21,624
                                                                            ------------    ------------

         Total deposits                                                          113,378          83,524

Other borrowings                                                                  18,800          15,873
Accrued interest payable on deposits                                                  66              71
Accounts payable and accrued liabilities                                             407             629
                                                                            ------------    ------------

         Total liabilities                                                       132,651         100,097
                                                                            ------------    ------------

Commitments and contingencies                                                         --              --
                                                                            ------------    ------------

                                          STOCKHOLDERS' EQUITY

Common stock, $0.01 par value, authorized 10,000,000 shares, issued
    and outstanding 1,247,516 shares in 2003 and 1,039,607 shares in 2002             12              10
Additional paid-in capital                                                        11,788           8,651
Retained earnings                                                                  1,172           3,325
Accumulated other comprehensive income:
     Net unrealized holding gains (losses) on securities                             (52)            168
                                                                            ------------    ------------

         Total stockholders' equity                                               12,920          12,154
                                                                            ------------    ------------

         Total liabilities and stockholders' equity                         $    145,571    $    112,251
                                                                            ============    ============

Book value per common share (1)                                             $      10.36    $       9.74
                                                                            ============    ============

Common shares outstanding (1)                                                  1,247,516       1,247,516
                                                                            ============    ============
</TABLE>

(1)   2002 adjusted for stock dividend in 2003.

          See accompanying notes to consolidated financial statements.


                                     - 43 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                             ----------------------------
                                                                                 2003            2002
                                                                             ------------    ------------
                                                                    (Dollars in Thousands, Except Per Share Data)
<S>                                                                          <C>             <C>
INTEREST INCOME
     Interest and fees on loans                                              $      6,087    $      5,566
     Interest and dividend on investments and deposits                                695             696
     Interest on federal funds sold                                                    55              69
                                                                             ------------    ------------
         Total interest income                                                      6,837           6,331
                                                                             ------------    ------------

INTEREST EXPENSE
     Interest on deposits                                                           1,507           1,663
     Other                                                                            283             231
                                                                             ------------    ------------
         Total interest expense                                                     1,790           1,894
                                                                             ------------    ------------

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES                                5,047           4,437

PROVISION FOR LOAN LOSSES                                                             319             196
                                                                             ------------    ------------

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES                                 4,728           4,241
                                                                             ------------    ------------

NONINTEREST INCOME
     Service charges on deposit accounts                                              539             515
     Mortgage banking fees                                                            183             213
     Other income                                                                     158             188
                                                                             ------------    ------------
         Total noninterest income                                                     880             916
                                                                             ------------    ------------

NONINTEREST EXPENSES
     Salaries and employee benefits                                                 2,157           1,998
     Expenses of bank premises and fixed assets                                       690             699
     Other operating expenses                                                       1,311           1,313
                                                                             ------------    ------------
         Total noninterest expenses                                                 4,158           4,010
                                                                             ------------    ------------

INCOME BEFORE PROVISION FOR INCOME TAXES                                            1,450           1,147

PROVISION FOR INCOME TAXES                                                            463             294
                                                                             ------------    ------------

NET INCOME                                                                            987             853

OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES:
     Unrealized holding gains (losses) on securities arising during period           (220)            228
                                                                             ------------    ------------

COMPREHENSIVE INCOME                                                         $        767    $      1,081
                                                                             ============    ============

AVERAGE COMMON SHARES OUTSTANDING (1)
     Basic                                                                      1,247,516         980,278
                                                                             ============    ============
     Fully diluted                                                              1,247,516       1,024,807
                                                                             ============    ============

EARNINGS PER SHARE (1)
     Basic                                                                   $       0.79    $       0.87
                                                                             ============    ============
     Fully diluted                                                           $       0.79    $       0.83
                                                                             ============    ============
</TABLE>

(1)   2002 adjusted for stock dividend in 2003.

          See accompanying notes to consolidated financial statements.


                                     - 44 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          December 31,
                                                                      --------------------
                                                                        2003        2002
                                                                      --------    --------
                                                                     (Dollars in Thousands)
<S>                                                                   <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net income                                                       $    987    $    853
     Adjustments to reconcile net income to net cash
        provided by (used in) operating activities:
         Provision for loan losses                                         319         196
         Depreciation and amortization                                     278         307
         Net premium amortization and discount accretion                   323          74
         Deferred income taxes                                            (121)        (70)
         Gain on sale of assets                                             --         (16)
         Increase in other assets                                         (278)        (90)
         (Increase) decrease in other liabilities                         (129)        172
                                                                      --------    --------

                  Net cash provided by operating activities              1,379       1,426
                                                                      --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES
     Securities available-for-sale:
         Purchases                                                     (15,516)     (8,287)
         Principal repayments mortgage-backed investment securities      8,851       3,828
     Purchases of FHLB stock                                              (115)        (31)
     Increase in loans                                                 (20,444)    (17,495)
     Proceeds from sale of assets                                           --         538
     Purchases of facilities                                            (1,623)       (427)
                                                                      --------    --------

                  Net cash used in investing activities                (28,847)    (21,874)
                                                                      --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES
     Increase in deposits:
         Noninterest-bearing                                             7,302       3,640
         Interest-bearing                                               22,552       6,391
     Proceeds from other borrowings                                      2,927      13,573
     Repayments of other borrowings                                         --        (744)
     Proceeds from stock warrants exercised                                 --       4,105
                                                                      --------    --------

                  Net cash provided by financing activities             32,781      26,965
                                                                      --------    --------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                5,313       6,517

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                          11,879       5,362
                                                                      --------    --------

CASH AND CASH EQUIVALENTS, END OF PERIOD                              $ 17,192    $ 11,879
                                                                      ========    ========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
     Cash received during the year for interest and dividends         $  6,791    $  6,295
                                                                      ========    ========
     Cash paid during the year for interest                           $  1,795    $  1,887
                                                                      ========    ========
     Cash paid during the year for income taxes                       $    928    $    285
                                                                      ========    ========

NONCASH TRANSACTIONS
     Net change in unrealized holding gains (losses) on securities
        available-for-sale, net of income taxes                       $   (220)   $    228
                                                                      ========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                     - 45 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                             Net
                                                                                         Unrealized
                                          Common Stock        Additional                Holding Gains        Total
                                      ---------------------    Paid-in     Retained      (Losses) on     Stockholders'
                                        Shares     Amount      Capital     Earnings      Securities          Equity
                                      ---------   ---------   ----------   ---------    -------------    -------------
                                                                  (Dollars in Thousands)
<S>                                   <C>         <C>         <C>          <C>          <C>              <C>
Balance, December 31, 2001              629,040   $       6   $    4,550   $   2,471    $         (60)   $       6,967

Stock warrants exercised                410,567           4        4,101          --               --            4,105
Rounding                                     --          --           --           1               --                1
Comprehensive income:
     Net income                              --          --           --         853               --
     Net change in net unrealized
       holding losses on securities          --          --           --          --              228

       Total comprehensive income            --          --           --          --               --            1,081
                                      ---------   ---------   ----------   ---------    -------------    -------------

Balance, December 31, 2002            1,039,607          10        8,651       3,325              168           12,154

Stock dividend                          207,909           2        3,137      (3,140)              --               (1)
Comprehensive income:
     Net income                              --          --           --         987               --
     Net change in net unrealized
       holding gains on securities           --          --           --          --             (220)

       Total comprehensive income            --          --           --          --               --              767
                                      ---------   ---------   ----------   ---------    -------------    -------------

Balance, December 31, 2003            1,247,516   $      12   $   11,788   $   1,172    $         (52)   $      12,920
                                      =========   =========   ==========   =========    =============    =============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                     - 46 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

General - Atlantic BancGroup, Inc. (the "Holding Company") is a bank holding
company registered with the Federal Reserve and owns 100% of the outstanding
stock of Oceanside Bank ("Oceanside"). Oceanside is a state-chartered commercial
bank, which opened July 21, 1997. Oceanside's deposits are insured by the
Federal Deposit Insurance Corporation. The Holding Company's primary business
activities are the operations of Oceanside and it operates in only one
reportable industry segment: banking. Collectively, the entities are referred to
as "Atlantic."

Competition - Oceanside, through four banking offices, provides a variety of
banking services to individuals and businesses located primarily in East Duval
and Northeast St. Johns Counties of Florida. Atlantic funds its loans primarily
by offering time, savings and money market, and demand deposit accounts to both
commercial enterprises and individuals. Atlantic competes with other banking and
financial institutions in its primary markets. Commercial banks, savings banks,
savings and loan associations, mortgage bankers and brokers, credit unions, and
money market funds actively compete for deposits and loans. Such institutions,
as well as consumer finance, mutual funds, insurance companies, and brokerage
and investment banking firms, may be considered competitors of Atlantic with
respect to one or more of the services it renders.

Basis of Presentation - The accompanying consolidated financial statements
include the accounts of the Holding Company and its wholly-owned subsidiary. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The accounting and reporting policies of Atlantic conform with
accounting principles generally accepted in the United States of America and to
general practices within the banking industry.

Regulatory Environment - Atlantic is subject to regulations of certain federal
and state agencies and, accordingly, it is periodically examined by those
regulatory authorities. As a consequence of the extensive regulation of
commercial banking activities, Atlantic's business is particularly susceptible
to being affected by federal legislation and regulations.

Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates. Material estimates
that are particularly susceptible to significant change in the near term relate
to the determination of the allowance for loan losses.

The determination of the adequacy of the allowance for loan losses is based on
estimates that may be affected by significant changes in the economic
environment and market conditions. In connection with the determination of the
estimated losses on loans, management obtains independent appraisals for
significant collateral.

Atlantic's loans are generally secured by specific items of collateral including
real property, consumer assets, and business assets. Although Atlantic has a
diversified loan portfolio, a substantial portion of its debtors' ability to
honor their contracts is dependent on local, state, and national economic
conditions.

While management uses available information to recognize losses on loans,
further reductions in the carrying amounts of loans may be necessary based on
changes in economic conditions. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the estimated losses on
loans. Such agencies may require Atlantic to recognize additional losses based
on their judgments about information available to them at the time of their
examination.

Cash and Cash Equivalents - For purposes of the statements of cash flows, cash
and cash equivalents include cash and due from banks and federal funds sold, all
of which mature within ninety days.

Oceanside is required by law or regulation to maintain cash reserves with the
Federal Reserve Bank. The reserve balances at December 31, 2003 and 2002 were
approximately $631,000 and $461,000, respectively.


                                     - 47 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (Continued)

Investment Securities - Debt securities are classified as held-to-maturity when
Atlantic has the positive intent and ability to hold the securities to maturity.
Securities held-to-maturity are carried at amortized cost. The amortization of
premiums and accretion of discounts are recognized in interest income using
methods approximating the interest method over the period to maturity.

Debt securities not classified as held-to-maturity are classified as
available-for-sale. Securities available-for-sale are carried at fair value with
unrealized gains and losses reported in other comprehensive income. Realized
gains (losses) on securities available-for-sale are included in noninterest
income and, when applicable, are reported as a reclassification adjustment, net
of tax, in other comprehensive income. Gains and losses on sales of securities
are determined on the specific-identification method.

Equity securities held principally for resale in the near term are classified as
trading securities and recorded at their fair values. Unrealized gains and
losses on trading securities are included in noninterest income. During 2003 and
2002, Atlantic did not engage in trading securities.

Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary result in write-downs
of the individual securities to their fair value. The related write-downs are
included in earnings as realized losses. As of December 31, 2003, no securities
were determined to have other than a temporary decline in fair value below cost.

Atlantic does not purchase, sell, or utilize off-balance sheet derivative
financial instruments or derivative commodity instruments.

Loans Held-for-Investment - Loans originated with the intent and ability to hold
for the foreseeable future or until maturity or payoff are categorized as loans
held-for-investment. These loans are reported at their outstanding principal
adjusted for any charge-offs, the allowance for loan losses, and any deferred
fees or capitalized costs.

The accrual of interest on loans is discontinued at the time the loan is ninety
days delinquent unless the loan is well collateralized and in process of
collection. In all cases, loans are placed on nonaccrual or charged-off at an
earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected for loans placed on nonaccrual or
charged-off is reversed against interest income. The interest on these loans is
accounted for on the cash-basis or cost-recovery method, until qualifying for
return to accrual. Loans are returned to accrual status when all the principal
and interest amounts contractually due are brought current and future payments
are reasonably assured.

Allowance for Loan Losses - The allowance for loan losses is established as
losses are estimated to have occurred through a provision for loan losses
charged to earnings. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.

The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.

A loan is considered impaired when, based on current information and events, it
is probable that Atlantic will be unable to collect the scheduled payments of
principal or interest when due. Factors considered by management in determining
impairment include payment status, collateral value, and the probability of
collecting scheduled principal and interest payments when due. Loans that
experience insignificant payment delays and payment shortfalls generally are not
classified as impaired. Management determines the significance of payment delays
and


                                     - 48 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (Continued)

payment shortfalls on a case-by-case basis, taking into consideration all of the
circumstances surrounding the loan and the borrower, including the length of the
delay, the reasons for the delay, the borrower's prior payment record, and the
amount of the shortfall in relation to the principal and interest owed.
Impairment is measured on a loan-by-loan basis for commercial loans by either
the present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's obtainable market price, or the fair value
of the collateral if the loan is collateral dependent.

Loans Held-for-Sale - Residential loans held-for-sale are valued at the lower of
cost or market as determined by outstanding commitments from investors or
current investor yield requirements. Gains and losses resulting from sales of
residential mortgage loans are recognized when Atlantic funds the loan and has a
commitment from the purchaser. Atlantic had no significant loans held-for-sale
as of December 31, 2003 or 2002. Loans originated for sale in 2003 and 2002
totaled $15.9 million and $20.9 million, respectively. The income from mortgage
banking operations totaled $183,000 and $213,000 for 2003 and 2002,
respectively.

Interest Rate Risk - Atlantic's asset base is exposed to risk including the risk
resulting from changes in interest rates and changes in the timing of cash
flows. Atlantic monitors the effect of such risks by considering the mismatch of
the maturities of its assets and liabilities in the current interest rate
environment and the sensitivity of assets and liabilities to changes in interest
rates. Atlantic's management has considered the effect of significant increases
and decreases in interest rates and believes such changes, if they occurred,
would be manageable and would not affect the ability of Atlantic to hold its
assets as planned. However, Atlantic is exposed to significant market risk in
the event of significant and prolonged interest rate changes.

Facilities - Facilities are stated at cost, less accumulated depreciation and
amortization. Charges to income for depreciation and amortization are computed
on the straight-line method over the assets' estimated useful lives. When
properties are sold or otherwise disposed of, the gain or loss resulting from
the disposition is credited or charged to income. Expenditures for maintenance
and repairs are charged against income and renewals and betterments are
capitalized.

Long-Lived Assets - Long-lived assets to be held and used are reviewed for
impairment whenever events or changes in circumstances indicate that the related
carrying amount may not be recoverable. When required, impairment losses on
assets to be held and used are recognized based on the fair value of the asset.
Certain long-lived assets to be disposed of are reported at the lower of
carrying amount or fair value less cost to sell.

Foreclosed Assets - Assets acquired through, or in lieu of, loan foreclosure are
to be sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the foreclosed asset is carried at the lower of
carrying amount or fair value less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in loss on
foreclosed assets.

Off-Balance Sheet Instruments - In the ordinary course of business, Atlantic has
entered into off-balance sheet financial instruments consisting of commitments
to extend credit, which may include standby letters of credit. Such financial
instruments are recorded in the financial statements when they become payable.

Transfers of Financial Assets - Transfers of financial assets are accounted for
as sales, when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been
isolated from Atlantic, (2) the transferee obtains the right (free of conditions
that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets, and (3) Atlantic does not maintain effective control over
the transferred assets through an agreement to repurchase them before their
maturity.

Employee Benefits - Pension costs are charged to salaries and employee benefits
expense when accrued. The accounting for income and costs associated with the
Indexed Retirement Plans is more fully described at Note 8.

                                     - 49 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (Continued)

Income Taxes - Deferred income tax assets and liabilities are recorded to
reflect the tax consequences on future years of temporary differences between
revenues and expenses reported for financial statement and those reported for
income tax purposes. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be realized or settled. Valuation
allowances are provided against assets that are not likely to be realized.

Computation of Per Share Earnings - Basic earnings per share ("EPS") amounts are
computed by dividing net earnings by the weighted average number of common
shares outstanding for the years ended December 31, 2003 and 2002, adjusted for
the 20% stock dividend in 2003. Diluted EPS are computed by dividing net
earnings by the weighted average number of shares and all dilutive potential
shares outstanding during the period. During the year ended December 31, 2002,
all warrants were either exercised or expired and Atlantic no longer has any
dilutive warrants outstanding. For purposes of computing diluted EPS, the
treasury stock method was used for 2003 and 2002. The following information was
used in the computation of EPS on both a basic and diluted basis for the years
ended December 31, 2003 and 2002 (dollars in thousands except per share data):

<TABLE>
<CAPTION>
                                                             For the Year Ended December 31,
                                                                    2003       2002
                                                                    ----       ----
<S>                                                               <C>        <C>
Basic EPS computation:
    Numerator - Net income                                        $    987   $    853
                                                                  ========   ========
    Denominator - Weighted average shares outstanding (rounded)      1,248        980
                                                                  ========   ========
    Basic EPS                                                     $   0.79   $   0.87
                                                                  ========   ========

Diluted EPS computation:
    Numerator - Net income                                        $    987   $    853
                                                                  ========   ========
    Denominator - Weighted average shares outstanding (rounded)      1,248      1,025
                                                                  ========   ========
    Diluted EPS                                                   $   0.79   $   0.83
                                                                  ========   ========
</TABLE>

Advertising and Business Development - Atlantic expenses advertising and
business development costs as incurred. Advertising and business development
costs for 2003 and 2002 as included in other operating expenses were $62,000 and
$53,000, respectively.

Reclassification of Accounts - Certain items in the financial statements for
2002 have been reclassified to conform to the classifications used for the
current year.

Recent Accounting Pronouncements - In December 2003, the FASB issued FASB
Interpretation No. 46 (revised December 2003), Consolidation of Variable
Interest Entities , which addresses how a business enterprise should evaluate
whether it has a controlling financial interest in an entity through means other
than voting rights and accordingly should consolidate the entity. FIN 46R
replaces FASB Interpretation No. 46, Consolidation of Variable Interest
Entities, which was issued in January 2003. Atlantic will be required to apply
FIN 46R to all entities subject to this Interpretation no later than the end of
the first reporting period that ends after December 15, 2004. This
interpretation must be applied to those entities that are considered to be
special-purpose entities no later than as of the end of the first reporting
period that ends after December 15, 2003.

For any variable interest entities (VIEs) that must be consolidated under FIN
46R that were created before January 1, 2004, the assets, liabilities and
noncontrolling interests of the VIE initially would be measured at their
carrying amounts with any difference between the net amount added to the balance
sheet and any previously recognized interest being recognized as the cumulative
effect of an accounting change. If determining the carrying amounts is not
practicable, fair value at the date FIN 46R first applies may be used to measure
the assets, liabilities and noncontrolling interest of the VIE. The application
of this Interpretation is not expected to have a material effect on Atlantic's
consolidated financial statements.

                                     - 50 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (Continued)

In December 2003, the Accounting Standards Executive Committee issued Statement
of Position 03-3, Accounting for Certain Loans or Debt Securities Acquired in a
Transfer ("SOP 03-3"). SOP 03-3 addresses accounting for differences between
contractual cash flows and cash flows expected to be collected from an
investor's initial investment in loans or debt securities (loans) acquired in a
transfer if those differences are attributable, at least in part, to credit
quality. SOP 03-3 includes loans acquired in purchase business combinations, but
does not apply to loans originated by the entity. SOP 03-3 is effective for
loans acquired in fiscal years beginning after December 15, 2004, although
earlier adoption is encouraged. The adoption of this new statement of position
is not expected to have a material impact on the consolidated financial position
or results of operations of Atlantic.

In May 2003, the FASB issued FASB Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity. This
Statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). Many of
those instruments were previously classified as equity. The provisions of this
Statement are effective for financial instruments entered into or modified after
May 31, 2003, and otherwise are effective at the beginning of the first interim
period beginning after June 15, 2003. The adoption of this new standard is not
expected to have an impact on the consolidated financial position or results of
operations of Atlantic.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. The Statement amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under
Statement 133. The amendments set forth in Statement 149 improve financial
reporting by requiring that contracts with comparable characteristics be
accounted for similarly. In particular, this Statement clarifies under what
circumstances a contract with an initial net investment meets the characteristic
of a derivative as discussed in Statement 133. In addition, it clarifies when a
derivative contains a financing component that warrants special reporting in the
statement of cash flows. Statement 149 amends certain other existing
pronouncements. Those changes will result in more consistent reporting of
contracts that are derivatives in their entirety or that contain embedded
derivatives that warrant separate accounting. Generally, this Statement is
effective for contracts entered into or modified after June 30, 2003. Since
Atlantic does not currently have any material derivatives or hedging activities,
the adoption of SFAS 149 is not expected to materially affect the financial
statements.

NOTE 2 - INVESTMENT SECURITIES

The amortized cost and estimated fair value of instruments in debt and equity
securities at December 31, 2003 and 2002, follow (dollars in thousands):

<TABLE>
<CAPTION>
                                                      December 31, 2003                               December 31, 2002
                                       ---------------------------------------------   ---------------------------------------------
                                                     Gross        Gross                              Gross        Gross
                                       Amortized   Unrealized   Unrealized    Fair     Amortized   Unrealized   Unrealized    Fair
                                          Cost       Gains        Losses      Value       Cost       Gains        Losses      Value
                                       ---------   ----------   ----------   -------   ---------   ----------   ----------   -------
<S>                                    <C>         <C>          <C>          <C>       <C>         <C>          <C>          <C>
Available-for-sale
   Mortgage-backed securities$         $  19,161   $      131   $      215   $19,077   $  12,814   $      270   $       --   $13,084
                                       ---------   ----------   ----------   -------   ---------   ----------   ----------   -------
     Total available-for-sale             19,161          131          215    19,077      12,814          270           --    13,084
                                       ---------   ----------   ----------   -------   ---------   ----------   ----------   -------

Held-to-maturity
   State, county and
     municipal bonds                       3,899          298           --     4,197       3,904          192           --     4,096
                                       ---------   ----------   ----------   -------   ---------   ----------   ----------   -------
     Total held-to-maturity                3,899          298           --     4,197       3,904          192           --     4,096
                                       ---------   ----------   ----------   -------   ---------   ----------   ----------   -------

Total investment securities            $  23,060   $      429   $      215   $23,274   $  16,718   $      462   $       --   $17,180
                                       =========   ==========   ==========   =======   =========   ==========   ==========   =======
</TABLE>


                                     - 51 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 2 - INVESTMENT SECURITIES (Continued)

The fair value of securities fluctuates during the investment period. During
2003 and 2002, no provision for loss has been made in connection with any
decline of fair value below book value for certain securities, because the
securities are purchased for investment purposes and the decline is not deemed
to be other than temporary. Temporary decreases in fair value of securities
available-for-sale at December 31, 2003, of $52,000 (net of deferred income
taxes of $32,000) are regarded as an adjustment to stockholders' equity. The
estimated fair value of securities is determined on the basis of market
quotations.

At December 31, 2003, securities with an amortized cost of $915,000 and fair
value of $994,000 were pledged to secure deposits of public funds from the state
of Florida and treasury tax and loan deposits with the Federal Reserve. At
December 31, 2003, securities were sold under an agreement to repurchase with a
fair value of $16.5 million, which effectively collateralizes overnight customer
repurchase agreements totaling $16.5 million (see Note 6). There were no
securities of a single issuer, which are non-governmental or
government-sponsored, that exceeded 10% of stockholders' equity at December 31,
2003.

The cost and estimated fair value of debt and equity securities at December 31,
2003, by contractual maturities, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties (dollars in
thousands).

<TABLE>
<CAPTION>
                             Securities Available-for-Sale    Securities Held-to-Maturity
                             -----------------------------    ---------------------------
                                Amortized         Fair          Amortized         Fair
                                  Cost            Value           Cost            Value
                                ---------        -------        ---------        -------
<S>                             <C>              <C>            <C>              <C>
Due in one to five years        $  12,715        $12,566        $      --        $    --
Due in five to ten years            1,850          1,881               --             --
Due in ten years or more            4,596          4,630            3,899          4,197
                                ---------        -------        ---------        -------

                                $  19,161        $19,077        $   3,899        $ 4,197
                                =========        =======        =========        =======
</TABLE>

NOTE 3 - LOANS

The loan portfolio is composed of the following (dollars in thousands):

                                    2003        2002
                                  --------    --------

Real estate loans                 $ 66,125    $ 50,580
Commercial loans                    26,812      21,519
Consumer and other loans             6,622       7,105
                                  --------    --------
    Total loan portfolio            99,559      79,204
Less, deferred fees                    (77)        (97)
Less, allowance for loan losses     (1,220)       (970)
                                  --------    --------

         Loans, net               $ 98,262    $ 78,137
                                  ========    ========

At December 31, 2003, fixed rate loans (excluding nonaccrual loans) with
maturities over one year totaled approximately $21.6 million.


                                     - 52 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 3 - LOANS (Continued)

The following is a summary of the transactions in the allowance for loan losses
(dollars in thousands):

                                                    2003        2002
                                                   -------    -------

Balance, beginning of period                       $   970    $   766
Provisions charged to operating expenses               319        196
Loans charged-off                                      (73)       (50)
Recoveries                                               4         58
                                                   -------    -------

Balance, end of period                             $ 1,220    $   970
                                                   =======    =======

Interest income recognized or received on impaired loans for 2003 and 2002 was
not material. At December 31, 2003 and 2002, impaired loans, all collateral
dependent, were as follows (dollars in thousands):

                                                    2003       2002
                                                    ----       ----
Average balance during year                         $ 26       $ 47
                                                    ====       ====

Total impaired loans                                $  1       $  8
Total related allowance for loan losses               --         (2)
                                                    ----       ----

Amount of impaired loans without a specific
 allowance for loan losses                          $  1       $  6
                                                    ====       ====

Nonaccrual and past due loans at December 31, 2003 and 2002, were as follows
(dollars in thousands):

                                                    2003       2002
                                                    ----       ----

Nonaccrual loans (and considered impaired)          $  1       $  8
Past due ninety days or more, but still accruing      15         --
                                                    ----       ----

                                                    $ 16       $  8
                                                    ====       ====

NOTE 4 - FACILITIES

Facilities. A summary follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                     Accumulated                  Estimated
                                                   Depreciation and   Net Book      Useful
                                           Cost      Amortization      Value        Lives
                                          ------   ----------------   --------   ------------
<S>                                       <C>         <C>             <C>        <C>
December 31, 2003:
     Land and land improvements           $  750      $      --       $    750
     Bank building and improvements        3,185            332          2,853   5 - 40 years
     Furniture, fixtures, and equipment    1,465            889            576   3 - 10 years
                                          ------      ---------       --------

                                          $5,400      $   1,221       $  4,179
                                          ======      =========       ========

December 31, 2002:
     Land and land improvements           $  750      $      --       $    750
     Bank building and improvements        1,888            261          1,627   5 - 40 years
     Furniture, fixtures, and equipment    1,137            680            457   3 - 10 years
                                          ------      ---------       --------

                                          $3,775      $     941       $  2,834
                                          ======      =========       ========
</TABLE>


                                     - 53 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 4 - FACILITIES (Continued)

Depreciation and amortization of facilities totaled $278,000 and $307,000 in
2003 and 2002, respectively.

Operating Leases. Atlantic leases property for a branch location and its
operations center at 13799 Beach Boulevard, Jacksonville, Florida, under a
noncancelable operating lease dated September 27, 2000. Annual minimum future
rental payments are $156,000 (plus an inflation adjustment) in the years 2004
through 2010, and $52,000 (plus an inflation adjustment) in 2011.

On August 22, 2002, Atlantic entered into a 20-year noncancelable operating
lease agreement for a new branch at the corner of Kernan Boulevard and Atlantic
Boulevard, Jacksonville, Florida. Lease payments commenced in September 2003,
and the branch opened December 15, 2003. The minimum annual rental for this
lease will be $75,000, subject to an inflation clause.

All other operating leases are not material. Total rent expense for 2003 and
2002 was $212,000 and $180,000, respectively. The future annual rental payments
for the branch leases (before inflation adjustments) are due as follows:
$231,000 for 2004 - 2010, $127,000 for 2011, $75,000 for 2012 - 2022, and
$50,000 in 2023.

NOTE 5 - TIME DEPOSITS

Time deposits at December 31, 2003 and 2002, totaled $44,262,000 and
$34,478,000, respectively. Maturities of such deposits follow (dollars in
thousands):

<TABLE>
<CAPTION>
                                              December 31, 2003             December 31, 2002
                                         ---------------------------   ---------------------------
                                         Time, $100,000   Other Time   Time, $100,000   Other Time
                                            And Over       Deposits       And Over       Deposits
                                         --------------   ----------   --------------   ----------
<S>                                       <C>             <C>            <C>            <C>
Three months or less                      $   6,923       $   7,477      $   3,450      $   6,540
Over three through twelve months              8,019          10,990          6,556         12,053
Over twelve months through three years        1,167           6,601          2,745          1,749
Over three years                                562           2,523            103          1,282
                                          ---------       ---------      ---------      ---------
                                          $  16,671       $  27,591      $  12,854      $  21,624
                                          =========       =========      =========      =========
</TABLE>

Interest expense on certificates of deposit of $100,000 or more totaled $520,000
and $437,000 for 2003 and 2002, respectively. Interest expense on other time
deposits totaled $583,000 and $711,000 for 2003 and 2002, respectively.

NOTE 6 - OTHER BORROWINGS

A summary follows (dollars in thousands):

                               December 31,
                             2003       2002
                           --------   --------

Repurchase agreement       $ 16,500   $ 13,573
FHLB of Atlanta advances      2,300      2,300
                           --------   --------

                           $ 18,800   $ 15,873
                           ========   ========

FHLB of Atlanta Advances. Atlantic has obtained an advance from FHLB of
$2,300,000 collateralized by Atlantic's FHLB capital stock and a blanket lien on
eligible wholly-owned residential (1-4 units) first mortgage loans totaling
approximately $3.1 million. This advance matures on November 17, 2005, and has a
fixed interest rate at 6.05%.


                                     - 54 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 6 - OTHER BORROWINGS (Continued)

Customer Repurchase Agreements. Atlantic has sold securities under an agreement
to repurchase with a par value of $16,321,000 and a fair value of $16,501,000,
which effectively collateralizes overnight borrowings totaling $16,500,000. The
interest rate on this overnight borrowing was 1.25%.

NOTE 7 - INCOME TAXES

The provision for income taxes on income is summarized as follows (dollars in
thousands):

                                        Year Ended December 31,
                                            2003      2002
                                           ------    ------

Current:
     Federal                               $  499    $  311
     State                                     85        53
                                           ------    ------
                                              584       364
                                           ------    ------

Deferred:
     Federal                                 (103)      (60)
     State                                    (18)      (10)
                                           ------    ------
                                             (121)      (70)
                                           ------    ------

              Total income tax provision   $  463    $  294
                                           ======    ======

A reconciliation of the income tax provision computed at the federal statutory
rate of 34% and the income tax provision shown on the statement of operations,
follows (dollars in thousands):

                                            2003                 2002
                                            ----                 ----
                                                 % of                 % of
                                      Amount    Pretax     Amount    Pretax
                                      ------    ------     ------    ------

Tax computed at statutory rate        $  493      34.0%    $  390      34.0%
Increase (decrease) resulting from:
    Nontaxable interest income, net      (64)     (4.4)       (63)     (5.5)
    Other                                 34       2.3        (33)     (2.9)
                                      ------    ------     ------    ------

         Income tax provision         $  463      31.9%    $  294      25.6%
                                      ======    ======     ======    ======

The components of the net deferred income tax assets are as follows (dollars in
thousands):

                                    December 31,
                                   2003      2002
                                  ------    ------

Deferred tax asset:
    Federal                       $  577    $  380
    State                             99        65
                                  ------    ------

                                     676       445
                                  ------    ------

Deferred tax liability:
    Federal                          (64)     (101)
    State                            (11)      (17)
                                  ------    ------

                                     (75)     (118)
                                  ------    ------

         Net deferred tax asset   $  601    $  327
                                  ======    ======

                                     - 55 -
<PAGE>
                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 7 - INCOME TAXES (Continued)

The tax effects of each type of significant item that gave rise to deferred
taxes are (dollars in thousands):

                                                              December 31,
                                                             2003     2002
                                                            ------   ------

Allowance for loan losses                                   $  445   $  356
Indexed retirement plans                                       122      106
Net unrealized holding gains (losses) on securities             32     (102)
Other, net                                                       2      (33)
                                                            ------   ------

         Net deferred tax asset                             $  601   $  327
                                                            ======   ======

Income taxes of $133,000 for 2003 and $138,000 for 2002 have been netted in the
caption "Unrealized holding gains (losses) on securities arising during period"
found in the Consolidated Statements of Operations and Comprehensive Income.

NOTE 8 - EMPLOYEE BENEFITS AND INDEXED RETIREMENT PLANS

SIMPLE Plan. Atlantic sponsors a SIMPLE Plan that covers substantially all
employees. Atlantic matches each participant's contribution, subject to a
maximum of 3% of the participant's salary. The SIMPLE Plan is a prototype plan
and has been approved by the Internal Revenue Service. The amount included in
salaries and employee benefits as pension expense totaled $43,000 and $40,000
for 2003 and 2002, respectively.

Indexed Retirement Plans. Atlantic has adopted an Indexed Retirement Plan
("IRP") for Atlantic's seven directors and four of its current or former
officers. The purpose of the IRP is to retain qualified directors and members of
management by offering a retirement benefit. Benefits under the IRP began
vesting over a five-year period, starting with service beginning in 1997. Upon
his resignation from Atlantic, a former officer and director was 60% vested in
the IRP. The remaining ten participants were each 100% vested at the end of
2003.

Atlantic has purchased a pool of life insurance policies with $1,100,000 that
had previously been invested in overnight federal funds sold. The policies have
cash surrender values that can progressively grow, based on a fluctuating index
of life insurance securities, resulting in an earnings stream. The portion of
that earnings stream equal to what Atlantic had been earning on its overnight
federal funds sold is realized as income by Atlantic. The variable portion above
what is retained by Atlantic is used to fund the IRP for the eleven
participants. Based on the structure of the IRP, Atlantic expects to recover all
of its investment (plus interest) in these life insurance policies.

The IRP participants will begin receiving annual cash retirement benefit
payments for a period of fifteen years after reaching age 65 in most cases. The
size of these payments will depend on the growth in value of the purchased pool
of life insurance policies. In addition, the beneficiaries of eight of the
participants will each receive 90% of the death benefits, payable upon the
respective participant's death, with the remaining 10% payable to Oceanside. The
remaining three participants will receive a larger lump sum payment in their
fifteenth year of receiving retirement benefits. A summary of the activity for
the IRP follows (dollars in thousands):

                                                                December 31,
                                                               2003      2002
                                                              ------    ------

Policy income included in other income                        $   57    $   78
Pension expense included in other operating expenses             (60)     (147)
Life insurance expense included in other operating expenses       (7)       (7)
Deferred income tax benefit                                       16        44
                                                              ------    ------

    Net after income tax benefit                              $    6    $  (32)
                                                              ======    ======


                                     - 56 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Credit-Related Financial Instruments. Atlantic is a party to credit related
financial instruments with off-balance sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit, standby letters of credit, and
commercial letters of credit. Such commitments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amount recognized in
the consolidated statements of financial condition. Atlantic's exposure to
credit loss is represented by the contractual amount of these commitments.
Atlantic follows the same credit policies in making commitments as it does for
on-balance sheet instruments.

At December 31, 2003 and 2002, the following financial instruments were
outstanding whose contract amounts represent credit risk for Atlantic (dollars
in thousands):

                                   December 31,
                                 2003       2002
                                 ----       ----

Commitments to extend credit   $ 17,650   $ 14,025
Standby letters of credit      $  1,614   $  1,298

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. The commitments for equity lines of credit may expire
without being drawn upon. Therefore, the total commitment amounts do not
necessarily represent future cash requirements. The amount of collateral
obtained, if it is deemed necessary by Atlantic, is based on management's credit
evaluation of the customer.

Unfunded commitments under commercial lines-of-credit, revolving credit lines,
and overdraft protection agreements are commitments for possible future
extensions of credit to existing customers. These lines-of-credit may not be
fully collateralized but generally contain a specified maturity date. Certain
conditions may exist that would prevent the customer from drawing upon the total
amount to which Atlantic is committed.

Commercial and standby letters-of-credit are conditional commitments issued by
Atlantic to guarantee the performance of a customer to a third party. Those
letters-of-credit are primarily issued to support public and private borrowing
arrangements. Approximately $1,285,000 of the $1,614,000 of letters-of-credit
issued and outstanding at December 31, 2003, have expiration dates within one
year. The credit risk involved in issuing letters-of-credit is essentially the
same as that involved in extending loan facilities to customers. Atlantic
generally holds collateral supporting those commitments if deemed necessary.

Collateral Requirements. To reduce credit risk related to the use of
credit-related financial instruments, Atlantic might deem it necessary to obtain
collateral. The amount and nature of the collateral obtained is based on
Atlantic's credit evaluation of the customer. Collateral held varies but may
include cash, securities, accounts receivable, inventory, property, plant and
equipment, and real estate.

If the counterparty does not have the right and ability to redeem the collateral
or Atlantic is permitted to sell or repledge the collateral on short notice,
Atlantic records the collateral in its statement of financial condition at fair
value with a corresponding obligation to return it.

Litigation. Atlantic may periodically be a party to or otherwise involved in
legal proceedings arising in the normal course of business, such as claims to
enforce liens, claims involving the making and servicing of real property loans,
and other issues incident to Atlantic's operations. Management, after
consultation with legal counsel, does not believe that there are any pending or
threatened proceedings against Atlantic which, if determined adversely, would
have a material effect on Atlantic's consolidated financial position.

Other. At December 31, 2003, Atlantic had $8.7 million of available lines of
credit from other banks for the purchase of overnight federal funds.

                                     - 57 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 10 - CONCENTRATIONS OF CREDIT

Substantially all of Atlantic's loans, commitments, and standby letters of
credit have been granted to customers in northeast Florida. The concentrations
of credit by type of loan are set forth in Note 3. The distribution of
commitments to extend credit approximates the distribution of loans outstanding.
Standby letters of credit were granted primarily to commercial borrowers.
Atlantic, as a matter of policy, does not extend credit to any single borrower
or group of related borrowers in excess of its legal lending limit. As a
state-chartered bank, Oceanside's 15% legal lending limit was approximately $1.8
million at December 31, 2003 ($3.0 million for loans qualifying for the 25%
limit). Atlantic does not have any significant concentrations to any one
industry or customer.

NOTE 11 - RELATED PARTIES

Atlantic has entered into transactions with its directors, executive officers,
significant stockholders, and their affiliates (insiders). Such transactions
were made in the ordinary course of business on substantially the same terms and
conditions, including interest rates and collateral, as those prevailing at the
same time for comparable transactions with other customers, and did not, in the
opinion of management, involve more than normal credit risk or present other
unfavorable features. A summary of activity for 2003 and 2002 for such loans
follows (dollars in thousands):

                              2003        2002
                            --------    --------

Beginning of year balance   $  2,159    $  1,499
Additions                      2,124         821
Reductions                    (2,852)       (161)
                            --------    --------

End of year balance         $  1,431    $  2,159
                            ========    ========

Unfunded commitments to the same parties totaled $1,137,000 at December 31,
2003. At December 31, 2003 and 2002, deposits and customer repurchase agreements
with insiders totaled approximately $17.0 million and $14.9 million,
respectively.

NOTE 12 - STOCKHOLDERS' EQUITY

Preferred Stock. In addition to the 10,000,000 shares of authorized common
stock, Atlantic's articles of incorporation authorize up to 2,000,000 shares of
preferred stock. The board of directors is further authorized to establish
designations, powers, preferences, rights, and other terms for preferred stock
by resolution. No shares of preferred stock have been issued.

Warrants. In connection with Oceanside's initial stock offering, each investment
unit consisted of one share of common stock and one transferable warrant to
purchase one share of common stock at $10.00 per share during the five-year
period beginning on the date Atlantic opened for business. A summary of the
warrant activity follows:

                                   Number of
                                   Warrants
                                   ---------

Outstanding at December 31, 2001     559,820
Warrants exercised, 2002            (410,567)
Unexercised warrants expired        (149,253)
                                   ---------
Outstanding at December 31, 2002          --
                                   =========

Total proceeds received during 2002 totaled $4.1 million.


                                     - 58 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 12 - STOCKHOLDERS' EQUITY (Continued)

Stock Dividend. On May 20, 2003, Atlantic's Board of Directors declared a stock
dividend payable at a rate of 20% of shares issued and outstanding to
stockholders of record May 30, 2003, payable on or before June 16, 2003. Cash in
lieu of fractional shares was paid at the rate of $15.10 per share, which was
the estimated fair market value at that time. The total cash paid in lieu of
fractional shares was less than $200.

Dividends. The ability of Atlantic to pay dividends to stockholders depends
primarily on dividends received by Atlantic from its subsidiary, Oceanside.
Oceanside's ability to pay dividends is limited by federal and state banking
regulations based upon Oceanside's profitability and other factors. State
banking statutes further require (i) prior approval, (ii) that at least 20% of
the prior year's earnings be transferred to additional paid-in capital (surplus)
annually until surplus equals or exceeds Oceanside's common stock, and (iii)
that certain minimum capital levels are maintained. At December 31, 2003,
retained earnings of approximately $539,000 were available to pay dividends to
the holding company only (Atlantic) in order to maintain Oceanside's current
regulatory capital classification.

NOTE 13 - OTHER OPERATING EXPENSES

Other operating expenses follow (dollars in thousands):

                                         2003     2002
                                        ------   ------

Processing and settlement fees          $  342   $  375
Professional, legal, and audit fees        208      176
Stationary, printing, and supplies          96      102
Postage, freight, and courier               84       85
Director fees                               84       84
Telephone                                   81       86
Advertising and business development        62       53
Pension expense                             60      147
Dues and subscriptions                      58       23
Insurance (excluding group insurance)       51       38
Regulatory assessments                      43       35
Other miscellaneous expenses               142      109
                                        ------   ------

                                        $1,311   $1,313
                                        ======   ======

NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

      Cash and Short-term Investments - For those short-term instruments, the
      carrying amount is a reasonable estimate of fair value.

      Investment Securities - For securities held as investments, fair value
      equals quoted market price, if available. If a quoted market price is not
      available, fair value is estimated using quoted market prices for similar
      securities.

      Federal Home Loan Bank Stock - Fair value of Atlantic's investment in
      Federal Home Loan Bank stock is its cost.


                                     - 59 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

      Loans Receivable - For loans subject to repricing and loans intended for
      sale within six months, fair value is estimated at the carrying amount
      plus accrued interest.

      The fair value of other types of loans is estimated by discounting the
      future cash flows using the current rates at which similar loans would be
      made to borrowers with similar credit ratings and for the same remaining
      maturities.

      Deposit Liabilities - The fair value of demand deposits, savings accounts,
      certain money market deposits, and customer repurchase agreements is the
      amount payable on demand at the reporting date. The fair value of
      long-term fixed maturity certificates of deposit is estimated using the
      rates currently offered for deposits of similar remaining maturities.

      Other Borrowings - For short-term debt, including accounts and demand
      notes payable, the carrying amount is a reasonable estimate of fair value.
      The fair value of customer repurchase agreements is the amount payable on
      demand at the reporting date.

      Off-Balance Sheet Instruments - Fair values for off-balance-sheet lending
      commitments are based on rates currently charged to enter into similar
      agreements, taking into account the remaining terms of the agreements and
      the counterparties' credit standing.

The estimated fair values of Atlantic's financial instruments at December 31,
2003, follow (dollars in thousands):

                                           Carrying     Fair
                                            Amount      Value
                                           --------   --------

Financial Assets
    Cash and deposits in other banks       $ 17,192   $ 17,192
    Investment securities                    22,976     23,274
    Stock in FHLB and correspondent bank        332        332
    Loans, net                               98,262     99,652
                                           --------   --------

         Total assets valued               $138,762   $140,450
                                           ========   ========

Financial Liabilities
    Deposits                               $113,378   $113,586
    Other borrowings                         18,800     19,109
                                           --------   --------

         Total liabilities valued          $132,178   $132,695
                                           ========   ========

While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that, were Atlantic to have
disposed of such items at December 31, 2003, the estimated fair values would
necessarily have been achieved at that date, since market values may differ
depending on various circumstances. The estimated fair values at December 31,
2003, should not necessarily be considered to apply at subsequent dates.


                                     - 60 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 15 - REGULATORY CAPITAL MATTERS

The Federal Reserve Board and other bank regulatory agencies have adopted
risk-based capital guidelines for banks and bank holding companies. The main
objectives of the risk-based capital framework are to provide a more consistent
system for comparing capital positions of banking organizations and to take into
account the different risks among banking organizations' assets, liabilities,
and off-balance sheet items. Bank regulatory agencies have supplemented the
risk-based capital standard with a leverage ratio for Tier I capital to total
reported assets.

Failure to meet the capital adequacy guidelines and the framework for prompt
corrective actions could initiate actions by the regulatory agencies, which
could have a material effect on the consolidated financial statements.

As of December 31, 2003, the most recent notification from the FDIC, Oceanside
was categorized as well capitalized under the regulatory framework for prompt
corrective action. To remain categorized as well capitalized, it will have to
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as disclosed in the table below. There are no conditions or events since the
most recent notification that management believes have changed the prompt
corrective action category.

<TABLE>
<CAPTION>
                                                                                                    To Be Well
                                                                                                   Capitalized
                                                                                                   Under Prompt
                                                                  For Capital                    Corrective Action
                                         Actual                  Adequacy Purposes                  Provisions
                                    Amount     Ratio           > Amount   > Ratio               > Amount   > Ratio
                                    ------     -----           - ------   - -----               - ------   - -----
                                                             (dollars in thousands)
<S>                                <C>         <C>              <C>         <C>                  <C>        <C>
As of December 31, 2003:
     Total Risk-Based Capital
     (To Risk-Weighted Assets)     $12,190     10.46%           $ 9,320     8.00%                $11,651    10.00%
     Tier I Capital
     (To Risk-Weighted Assets)     $10,970      9.42%           $ 4,660     4.00%                $ 6,990     6.00%
     Tier I Leverage
     (To Average Assets)           $10,970      8.12%           $ 5,403     4.00%                $ 6,753     5.00%

As of December 31, 2002:
     Total Risk-Based Capital
     (To Risk-Weighted Assets)     $ 9,890     10.73%           $ 7,377     8.00%                $ 9,221    10.00%
     Tier I Capital
     (To Risk-Weighted Assets)     $ 8,920      9.67%           $ 3,689     4.00%                $ 5,533     6.00%
     Tier I Leverage
     (To Average Assets)           $ 8,920      9.00%           $ 3,965     4.00%                $ 4,956     5.00%
</TABLE>


                                     - 61 -
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 2003 AND 2002

NOTE 16 - PARENT COMPANY FINANCIAL INFORMATION

Presented below are condensed financial statements for Atlantic BancGroup, Inc.
(parent only):

<TABLE>
<CAPTION>
Condensed Balance Sheets as of December 31:                     2003        2002
                                                              --------    --------
                                                             (Dollars In Thousands)
<S>                                                           <C>         <C>
Assets
     Cash and cash equivalents                                $  1,947    $  3,043
     Investment in and advances to subsidiary bank              10,918       9,088
     Other assets                                                   55          23
                                                              --------    --------
     Total                                                    $ 12,920    $ 12,154
                                                              ========    ========

Liabilities and Stockholders' Equity
     Liabilities                                              $     --    $     --
     Stockholders' equity                                       12,920      12,154
                                                              --------    --------
     Total                                                    $ 12,920    $ 12,154
                                                              ========    ========

<CAPTION>
Condensed Statements of Operations and Stockholders' Equity
Years Ended December 31:                                        2003        2002
                                                              --------    --------
                                                             (Dollars In Thousands)
<S>                                                           <C>         <C>
Equity in net income of subsidiary bank                       $  1,049    $    905
Other income                                                        43          40
Other expenses (net of income tax benefit)                        (105)        (92)
                                                              --------    --------
Net income                                                         987         853
Stockholders' Equity:
     Beginning of  year                                         12,154       6,967
     Stock warrants exercised and rounding                          (1)      4,106
     Net change in unrealized holding gains (losses)
        on securities in subsidiary bank                          (220)        228
                                                              --------    --------
     End of year                                              $ 12,920    $ 12,154
                                                              ========    ========

<CAPTION>
Condensed Statements of Cash Flows
Years Ended December 31:                                        2003        2002
                                                              --------    --------
                                                             (Dollars In Thousands)
<S>                                                           <C>         <C>
Operating Activities
Net income                                                    $    987    $    853
Adjustment to reconcile net income to net cash
   provided by operating activities:
     Equity in undistributed earnings of subsidiary bank        (1,049)       (905)
     Other                                                         (34)          9
                                                              --------    --------
Net Cash Used In Operating Activities                              (96)        (43)
                                                              --------    --------

Investing Activities
     Proceeds from sale of assets                                   --         538
     Capital contributions to subsidiary bank                   (1,000)     (1,100)
                                                              --------    --------
Net Cash Used In Investing Activities                           (1,000)       (562)
                                                              --------    --------

Financing Activities
     Repayment of other borrowings                                  --        (744)
     Proceeds from stock warrants exercised                         --       4,105
                                                              --------    --------
Net Cash Provided by Financing Activities                           --       3,361
                                                              --------    --------

Increase (Decrease) in Cash and Cash Equivalents                (1,096)      2,756
Cash and Cash Equivalents:
     Beginning of year                                           3,043         287
                                                              --------    --------
     End of year                                              $  1,947    $  3,043
                                                              ========    ========
</TABLE>


                                     - 62 -
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Neither Atlantic nor Oceanside has had any disagreements with its Accountants.

ITEM 8A. CONTROLS AND PROCEDURES.

Background of Internal Controls and Internal Audits. Oceanside is the sole
financial subsidiary of Atlantic. Oceanside has in place extensive policies and
operating procedures for loans, operations, accounting and compliance. All
audits, whether internal or external are reported directly to the joint Audit
Committee of Oceanside and Atlantic and subsequently to the Boards of Directors
of Oceanside and Atlantic.

The joint Audit Committee of Oceanside and Atlantic maintains an audit calendar
prepared by the internal auditor for planning purposes. This audit calendar is
submitted to the Boards of Oceanside and Atlantic for approval. Annually
Atlantic engages an external Certified Public Accounting firm to perform an
independent audit conducted in accordance with generally accepted auditing
standards.

Periodically, Oceanside and Atlantic undergo regulatory examinations that
include tests of the policies and operating procedures for loans, operations,
accounting and compliance. The results of these examinations are presented by
the regulators to the Boards of Oceanside and Atlantic.

Evaluation of Disclosure Controls and Procedures. Atlantic's Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness of
Atlantic's disclosure controls and procedures (as such term is defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"). Based on their evaluation, they
have concluded that, as of the Evaluation Date, Atlantic's disclosure controls
and procedures are effective in bringing to their attention on a timely basis
material information relating to Atlantic (including its consolidated
subsidiary) required to be included in Atlantic's periodic filings under the
Exchange Act.

Changes in Internal Controls. Since the Evaluation Date, there have not been any
significant changes in Atlantic's internal controls or in other factors that
could significantly affect those controls.


                                       63
<PAGE>

                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information contained under the section captioned "Election of Directors"
beginning on page 5 of Atlantic's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held on April 22, 2004, filed as Exhibit 99.1
herein (the "Proxy Statement"), is incorporated herein by reference.

                COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The information contained under the section captioned "Section 16(a) Beneficial
Ownership Compliance" at page 11 of Atlantic's definitive Proxy Statement is
incorporated herein by reference (see Exhibit 99.1).

                                 CODE OF ETHICS

In 2003, Atlantic adopted a Code of Ethics which applies to its principal
executive and financial officers (see Exhibit 14).

ITEM 10. EXECUTIVE COMPENSATION.

The information contained in the sections captioned "Board of Directors
Meetings," at page 3 and "Executive Compensation" at page 9 and "Benefits" at
page 9 under "Executive Compensation" in the definitive Proxy Statement, is
incorporated herein by reference (see Exhibit 99.1).

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS.

The information contained in the section captioned "Beneficial Stock Ownership
of Directors and Executive Officers" at page 8 under "Election of Directors" in
the definitive Proxy Statement, is incorporated herein by reference (see Exhibit
99.1).

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information contained in the section captioned "Certain Relationships and
Related Transactions" at page 9 in the definitive Proxy Statement is
incorporated herein by reference (see Exhibit 99.1).


                                       64
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

      (a)   Exhibits

            2.1   Agreement and Plan of Reorganization dated November 19, 1998,
                  approved April 3, 1999, and completed May 5, 1999
                  (Incorporated by reference to Exhibit 2.1 to Atlantic's Form
                  10-KSB for year ended December 31, 1999)

            3.1   Articles of Incorporation of Atlantic BancGroup, Inc. included
                  in the Registration Statement on Form 8-A filed with the
                  Securities and Exchange Commission on May 17, 1999
                  (Incorporated by reference to Exhibit 3.1 to Atlantic's Form
                  10-KSB for year ended December 31, 1999)

            3.2   Bylaws of Atlantic BancGroup, Inc. (Incorporated by reference
                  to Exhibit 3.2 to Atlantic's Form 10-KSB for year ended
                  December 31, 1999)

            4.1   Specimen Stock Certificate of Atlantic BancGroup, Inc.
                  included in the Registration Statement on Form 8-A filed with
                  the Securities and Exchange Commission on May 17, 1999
                  (Incorporated by reference to Exhibit 4.1 to Atlantic's Form
                  10-KSB for year ended December 31, 1999)

            10.1  Software License Agreement dated as of October 6, 1997,
                  between Oceanside and File Solutions, Inc. (Incorporated by
                  reference to Exhibit 10.1 to Atlantic's Form 10-KSB for year
                  ended December 31, 1999)

            10.2  File Solutions Software Maintenance Agreement dated as of July
                  15, 1997, between Oceanside and SPARAK Financial Systems, Inc.
                  (Incorporated by reference to Exhibit 10.2 to Atlantic's Form
                  10-KSB for year ended December 31, 1999)

            10.3  Remote Data Processing Agreement dated as of March 3, 1997,
                  between Oceanside and Bankers Data Services, Inc.
                  (Incorporated by reference to Exhibit 10.3 to Atlantic's Form
                  10-KSB for year ended December 31, 1999)

            10.4  Lease dated September 27, 2000, between MANT EQUITIES, LLC and
                  Oceanside (Incorporated by reference to Exhibit 10.4 to
                  Atlantic's Form 10-KSB for year ended December 31, 2000)

            10.5  Lease dated August 22, 2002, between PROPERTY MANAGEMENT
                  SUPPORT, INC., and Oceanside (Incorporated by reference to
                  Exhibit 10.5 to Atlantic's Form 10-KSB for year ended December
                  31, 2002).


                                       65
<PAGE>

            11    The computation of per share earnings is shown in the
                  consolidated financial statements of Atlantic BancGroup, Inc.
                  and Subsidiary for December 31, 2003 and 2002, contained in
                  Item 7, on Page 50 of the Notes to Consolidated Financial
                  Statements

            14    Code of Ethics for Senior Officers Policy

            21.1  Subsidiary of the Registrant

            31.1  Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
                  Officer

            31.2  Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
                  Officer

            32.1  Section 1350 of Chapter 63 of Title 18 of the U.S.C. for Chief
                  Executive Officer

            32.2  Section 1350 of Chapter 63 of Title 18 of the U.S.C. for Chief
                  Financial Officer

            99.1  Atlantic BancGroup, Inc. Proxy Statement for the Annual
                  Meeting of Shareholders to be held on April 22, 2004

      (b)   Reports on Form 8-K

            A Form 8-K was filed by the Company on October 31, 2003, which
            reported a press release announcing the financial results for the
            fiscal quarter ended September 30, 2003.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information contained in the section captioned "Ratification of the
Appointment of the Independent Auditor for the Fiscal Year Ending December 31,
2004," at page 10 in the definitive Proxy Statement is incorporated herein by
reference (see Exhibit 99.1).


                                       66
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be duly signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Jacksonville Beach, State of Florida, on the 19th of March, 2004.

                                        ATLANTIC BANCGROUP, INC.

                                        /s/     Barry W. Chandler
                                        ----------------------------------------
                                        Barry W. Chandler
                                        President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the 19th of March, 2004.

Signature                              Title
---------                              -----

/s/     Donald F. Glisson, Jr.         Chairman of the Board
---------------------------------
        Donald F. Glisson, Jr.

/s/     Barry W. Chandler              President and Chief Executive Officer
---------------------------------
        Barry W. Chandler

 /s/    David L. Young                 Executive Vice President, Chief Financial
---------------------------------      Officer, and Corporate Secretary
        David L. Young

 /s/    Frank J. Cervone               Director
---------------------------------
        Frank J. Cervone

 /s/    Jimmy Dubberly                 Director
---------------------------------
        Jimmy Dubberly

 /s/    Robin H. Scheiderman           Director
---------------------------------
        Robin H. Scheiderman

/s/     G. Keith Watson                Director
---------------------------------
        G. Keith Watson

 /s/    Conrad L. Williams             Director
---------------------------------
        Conrad L. Williams

 /s/    Dennis M. Wolfson              Director
---------------------------------
        Dennis M. Wolfson


                                       67
<PAGE>

                     ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

                                   Form 10-KSB
                     For Fiscal Year Ended December 31, 2003

                                  EXHIBIT INDEX

Exhibit
  No.                                          Exhibit
-------                                        -------

14                         Code of Ethics for Senior Officers Policy


21.1                       Subsidiary of the Registrant

31.1                       Rule 13a-14(a)/15d - 14(a) Certifications of
                           Chief Executive Officer

31.2                       Rule 13a-14(a)/15d - 14(a) Certifications of
                           Chief Financial Officer

32.1                       Section 1350 of Chapter 63 of Title 18 of the U.S.C.
                           for Chief Executive Officer

32.2                       Section 1350 of Chapter 63 of Title 18 of the U.S.C.
                           for Chief Financial Officer

99.1                       Atlantic BancGroup, Inc. Proxy Statement for the
                           Annual Meeting of Shareholders to be held on April
                           22, 2004.


                                       68