UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 

 
FORM 10-QSB

þ
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2008

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

For the transition period from                  to                 .

Commission File Number 001-15061
 

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

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

1315 S. Third Street
Jacksonville Beach, Florida  32250
(Address of Principal Executive Offices)


 
 
(904) 247-9494
(Issuer’s telephone number)
 

 

Check whether the issuer (1) filed all reports required by Section 13 or 15 (d) of the Exchange Act 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 ý     NO o

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

     Class      
Outstanding as of July 31, 2008
Common Stock
Common Stock – 1,247,516
  Par Value $0.01 per share
 


Transitional Small Business Format (check one):   YES o     NO ý

 
 

 

ATLANTIC BANCGROUP, INC. AND SUBSIDIARY

FORM 10-QSB - FOR THE QUARTER ENDED JUNE 30, 2008

IN D EX

   
PAGE
   
NUMBER
     
 
     
   
     
 
3
     
 
4
     
 
5
     
 
6
     
 
7
     
 
14
     
 
25
     
     
26
     
     
28
     
     




ATL A NTIC BANCGROUP, INC. AND SUBSIDIARY
CONDENSED CON S OLIDATED STATEMENTS OF FINANCIAL CONDITION
(Doll a rs in Thousands, Except Per Share Data)
             
             
   
June 30, 2008
   
December 31,
 
   
(Unaudited)
   
2007
 
ASSETS
           
Cash and due from banks
  $ 4,285     $ 4,656  
Federal funds sold
    5,277       -  
Total cash and cash equivalents
    9,562       4,656  
                 
Investment securities, available-for-sale
    20,338       25,538  
Investment securities, held-to-maturity (market value of $14,946 in 2008 and
               
  $15,522 in 2007)
    15,539       15,762  
Restricted stock, at cost
    775       746  
Loans, net
    201,558       201,891  
Bank premises and equipment
    3,679       3,784  
Other real estate owned
    4,149       -  
Accrued interest receivable
    1,102       1,538  
Deferred income taxes
    1,107       996  
Investment in unconsolidated subsidiary
    93       93  
Cash surrender value of bank-owned life insurance
    4,780       4,680  
Other assets
    1,496       1,722  
                 
TOTAL
  $ 264,178     $ 261,406  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
Deposits:
               
Noninterest-bearing
  $ 27,634     $ 27,278  
Interest-bearing
    191,528       190,213  
                 
Total deposits
    219,162       217,491  
                 
Short-term borrowings
    19,180       18,188  
Long-term borrowings
    5,393       5,393  
Accrued interest payable
    311       384  
Other liabilities
    1,519       1,094  
                 
Total liabilities
    245,565       242,550  
                 
Commitments and contingencies
    -       -  
                 
Stockholders' equity:
               
Common stock
    12       12  
Additional paid-in capital
    11,788       11,788  
Retained earnings
    6,904       7,140  
Accumulated other comprehensive loss:
               
Net unrealized holding losses on securities, available-for-sale
    (91 )     (84 )
                 
Total stockholders' equity
    18,613       18,856  
                 
TOTAL
  $ 264,178     $ 261,406  
                 
Book value per common share
  $ 14.92     $ 15.11  
                 
Common shares outstanding
    1,247,516       1,247,516  
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
ATLANTIC BANCGROUP, INC. AND SUBSIDIARY
CONDENSED CONS O LIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED)
(Dollars in Thousands, Except Per Share Data)
                         
   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30,
   
June 30,
 
   
2008
   
2007
   
2008
   
2007
 
                         
Interest and fees on loans
  $ 3,328     $ 3,748     $ 6,958     $ 7,509  
Investment income on investment securities and
                               
 interest-bearing deposits in banks
    257       332       545       664  
Tax-exempt interest income on investment securities
    169       146       339       256  
Interest on federal funds sold
    12       155       20       194  
  Total interest income
    3,766       4,381       7,862       8,623  
                                 
Interest on deposits
    1,953       2,147       4,126       4,110  
Short-term borrowings
    60       204       179       404  
Long-term borrowings
    73       72       145       144  
  Total interest expense
    2,086       2,423       4,450       4,658  
                                 
  Net interest income before provision for loan losses
    1,680       1,958       3,412       3,965  
                                 
Provision for loan losses
    661       -       885       62  
                                 
  Net interest income after provision for loan losses
    1,019       1,958       2,527       3,903  
                                 
Noninterest income:
                               
 Fees and service charges on deposit accounts
    158       172       322       319  
 Other fee income for banking services
    38       50       74       103  
 Mortgage banking fees
    9       28       11       40  
 Income from bank-owned life insurance
    56       28       109       55  
 Dividends from restricted stock
    8       9       17       17  
 Dividends on trust preferred securities
    2       2       3       3  
 Other income
    10       16       21       28  
  Total noninterest income
    281       305       557       565  
                                 
Noninterest expenses:
                               
 Salaries and employee benefits
    783       766       1,578       1,542  
 Expenses of bank premises and fixed assets
    269       289       542       565  
 Other operating expenses
    715       548       1,459       1,038  
  Total noninterest expenses
    1,767       1,603       3,579       3,145  
                                 
Income (loss) before provision for income taxes
    (467 )     660       (495 )     1,323  
                                 
Provision (benefit) for income taxes
    (265 )     189       (340 )     392  
                                 
Net income (loss)
    (202 )     471       (155 )     931  
                                 
Other comprehensive losses, net of income taxes:
                               
 Unrealized holding losses arising during period
    (358 )     (253 )     (7 )     (206 )
                                 
Comprehensive income (loss)
  $ (560 )   $ 218     $ (162 )   $ 725  
                                 
Earnings (loss) per common share
                               
Basic
  $ (0.16 )   $ 0.38     $ (0.12 )   $ 0.75  
   Diluted
  $ (0.16 )   $ 0.38     $ (0.12 )   $ 0.75  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
ATLANTIC BANCGROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEM E NTS OF CASH FLOWS (UNAUDITED)
(Dollars in Thousands)
                         
                         
   
For the Three Months Ended
   
For the Six Months Ended
 
   
June 30,
   
June 30,
 
   
2008
   
2007
   
2008
   
2007
 
                         
Cash flows from operating activities:
                       
 Net income (loss)
  $ (202 )   $ 471     $ (155 )   $ 931  
 Provision for loan losses
    661       -       885       62  
 Depreciation and amortization
    80       81       157       159  
 Net premium amortization and discount accretion
    (7 )     (22 )     (15 )     (14 )
 Net change in other assets and liabilities
    (2,783 )     (932 )     (4,842 )     (522 )
                                 
  Net cash provided (used) by operating activities
    (2,251 )     (402 )     (3,970 )     616  
                                 
Cash flows from investing activities:
                               
 Net (increase) decrease in:
                               
  Investment securities
    3,509       (5,205 )     5,427       (3,637 )
  Loans
    (2,793 )     (621 )     (552 )     (5,082 )
 Investment in bank-owned life insurance 
    -       (2,000 )     -       (2,000 )
 Proceeds from sale of other real estate owned
    770       -       1,390       -  
 Purchases of bank premises and equipment, net
    (15 )     (34 )     (52 )     (104 )
                                 
  Net cash provided (used) by investing activities
    1,471       (7,860 )     6,213       (10,823 )
                                 
Cash flows from financing activities:
                               
Net increase (decrease) in deposits
    (3,567 )     1,206       1,671       14,848  
Net increase (decrease) in other borrowings
    4,730       2,773       992       (3,152 )
                                 
  Net cash provided by financing activities
    1,163       3,979       2,663       11,696  
                                 
Net increase (decrease) in cash and cash equivalents
    383       (4,283 )     4,906       1,489  
                                 
Cash and cash equivalents at beginning of period
    9,179       23,471       4,656       17,699  
                                 
Cash and cash equivalents at end of period
  $ 9,562     $ 19,188     $ 9,562     $ 19,188  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
 
 
ATLANTIC BANCGROUP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF S T OCKHOLDERS' EQUITY (UNAUDITED)
(Dollars In Thousands)
                                     
                                     
                           
Net
       
                           
Unrealized
       
                           
Holding Gains
       
                           
(Losses) on
       
               
Additional
         
Securities
   
Total
 
   
Common Stock
   
Paid-in
   
Retained
   
Available-
   
Stockholders'
 
   
Shares
   
Amount
   
Capital
   
Earnings
   
for-Sale
   
Equity
 
                                     
Balance, December 31, 2007,
                                   
 as previously reported
    1,247,516     $ 12     $ 11,788     $ 7,140     $ (84 )   $ 18,856  
                                                 
Cumulative effect adjustment -
                                               
 Implementation of EITF 06-10
                                               
 ( See Notes 1 and 9 )
    -       -       -       (81 )     -       (81 )
                                                 
Balance, January 1, 2008
    1,247,516       12       11,788       7,059       (84 )     18,775  
                                                 
Comprehensive income:
                                               
 Net income for the quarter
    -       -       -       47       -          
 Net change in unrealized
                                               
 holding gains on securities
                                               
 available-for-sale
    -       -       -       -       351          
                                                 
Total comprehensive income
    -       -       -       -       -       398  
                                                 
Balance, March 31, 2008
    1,247,516       12       11,788       7,106       267       19,173  
                                                 
Comprehensive loss:
                                               
 Net loss for the quarter
    -       -       -       (202 )     -          
 Net change in unrealized
                                               
 holding losses on securities
                                               
 available-for-sale
    -       -       -       -       (358 )        
                                                 
 Total comprehensive loss
    -       -       -       -       -       (560 )
                                                 
Balance, June 30, 2008
    1,247,516     $ 12     $ 11,788     $ 6,904     $ (91 )   $ 18,613  
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 

ATLANTIC BANCGROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED F I NANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2008


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

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.  Oceanside owns 100% of the outstanding stock of S. Pt. Properties, Inc. (the “Subsidiary”), which was formed in February 2008 to hold title to real estate owned acquired by the Subsidiary through foreclosure.  The Holding Company’s primary business activity is the operation of Oceanside, and it operates in only one reportable industry segment, banking.  Collectively, the entities are referred to as “Atlantic.”  References to Atlantic, Oceanside, and the Subsidiary throughout these condensed consolidated financial statements are made using the first-person notations of “we,” “our,” and “us.”

The accompanying condensed consolidated financial statements include the accounts of the Holding Company, its wholly-owned subsidiary, Oceanside, and the 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.

Our condensed consolidated financial statements for the three and six months ended June 30, 2008 and 2007, have not been audited and do not include information or footnotes necessary for a complete presentation of consolidated financial condition, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America.  In management’s opinion, the accompanying condensed consolidated financial statements contain all adjustments, which are of a normal recurring nature, necessary for a fair presentation.  Our results of operations for the interim periods are not necessarily indicative of the results that may be expected for an entire year.  The accounting policies followed by us are set forth in the consolidated financial statements for the year ended December 31, 2007, and are incorporated herein by reference.

Oceanside provides a wide range of banking services to individual and corporate customers primarily in Duval County and St. Johns County, Florida.  We are subject to regulations of certain federal and state regulatory agencies and, accordingly, we are examined by those agencies.  As a consequence of the extensive regulation of commercial banking activities, our business is particularly susceptible to being affected by federal and state 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 and valuation of foreclosed assets.

The determination of the adequacy of the allowance for loan losses and the valuation of foreclosed assets 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 and the valuation of foreclosed assets, management obtains independent appraisals for significant collateral.

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 our debtors’ ability to honor their contracts is dependent on local, state, and national economic conditions that may affect the value of the underlying collateral or the income of the debtor.

While management uses available information to recognize losses on loans and foreclosed assets, further reductions in the carrying amounts of loans and foreclosed assets 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 and carrying value of foreclosed assets.  Such agencies may require us to recognize additional losses based on their judgments about information available to them at the time of their examination.



ATLANTIC BANCGROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2008


Fair Value of Financial Instruments - Financial instruments consist of cash, due from banks, federal funds sold, investment securities, loans receivable, accrued interest receivable, deposits, other borrowings, accrued interest payable, and off-balance sheet commitments such as commitments to extend credit and standby letters of credit.  On an interim basis, we consider the cost of providing estimated fair values by each class of financial instrument to exceed the benefits derived.

Reclassifications - Certain amounts in the prior periods have been reclassified to conform to the presentation for the current period.

Recent Accounting Pronouncements - In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - including an amendment of FASB Statement No. 115 (“SFAS 159”).  SFAS 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis.  Subsequent changes in fair value of these financial assets and liabilities would be recognized in earnings when they occur. SFAS 159 became effective beginning January 1, 2008.  Atlantic elected not to measure any eligible items using the fair value option in accordance with SFAS 159 and therefore, SFAS 159 did not have an impact on Atlantic’s financial position, results of operations, or cash flows.

In March 2007, the EITF reached a final consensus on Issue 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements (“EITF 06-10”).  EITF 06-10 stipulates that a liability should be recognized for a postretirement benefit obligation associated with a collateral assignment arrangement if, on the basis of the substantive agreement with the employee, the employer has agreed to maintain a life insurance policy during the postretirement period or provide a death benefit.  The employer also must recognize and measure the associated asset on the basis of the terms of the collateral assignment arrangement.  The consensus is effective for fiscal years beginning after December 15, 2007.  Entities will have the option of applying the provisions of EITF 06-10 as a cumulative effect adjustment to the opening balance of retained earnings or retrospectively to all prior periods.  EITF 06-10 did not have a material impact on Atlantic’s financial position, results of operations, or liquidity.  As of January 1, 2008, Atlantic recorded $81,000 (net of income taxes) as an adjustment to beginning retained earnings as permitted by EITF 06-10, which decreased stockholders’ equity from December 31, 2007, by less than 0.5%.  Any additional adjustments, if any, related to implementation of EITF 06-10 are expected to be immaterial (see Note 9 ).

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS 161”).  SFAS 161 requires enhanced disclosures about derivatives and hedging activities.  It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  Atlantic is currently assessing the extent, if any, of any additional required disclosures.

A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies.  Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to Atlantic’s consolidated financial statements.


 


ATLANTIC BANCGROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2008


NOTE 2 - COMPUTATION OF PER SHARE EARNINGS (LOSS)

Basic earnings (loss) per share (“EPS”) amounts are computed by dividing net earnings (loss) by the weighted average number of common shares outstanding for the three and six months ended June 30, 2008 and 2007.  Diluted EPS are computed by dividing net earnings (loss) by the weighted average number of shares and all dilutive potential shares outstanding during the period.  We have no dilutive potential shares outstanding for 2008 or 2007.  The following information was used in the computation of EPS on both a basic and diluted basis for the three and six months ended June 30, 2008 and 2007 (dollars and number of shares in thousands):

   
Three Months Ended June 30,
 
   
2008
   
2007
 
Basic and diluted EPS computation:
           
Numerator - Net income (loss)
  $ (202 )   $ 471  
Denominator - Weighted average shares outstanding (rounded)
    1,248       1,248  
Basic and diluted earnings (loss) per share
  $ (0.16 )   $ 0.38  
                 
   
Six Months Ended June 30,
 
   
2008
   
2007
 
Basic and diluted EPS computation:
               
Numerator - Net income (loss)
  $ (155 )   $ 931  
Denominator - Weighted average shares outstanding (rounded)
    1,248       1,248  
Basic and diluted earnings (loss) per share
  $ (0.12 )   $ 0.75  


NOTE 3 - INVESTMENT SECURITIES

The amortized cost and estimated fair value of instruments in debt and equity securities are as follows (dollars in thousands):

   
June 30, 2008
   
December 31, 2007
 
         
Gross
   
Gross
                     
Gross
   
Gross
 
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
   
Amortized
   
Unrealized
   
Unrealized
   
Fair
 
   
Cost
   
Gains
   
Losses
   
Value
   
Cost
   
Gains
   
Losses
   
Value
 
Available-for-sale
                                               
U.S. Government-sponsored
                                               
     agency securities
  $ 2,983     $ 30     $ -     $ 3,013     $ 2,983     $ 36     $ -     $ 3,019  
Mortgage-backed securities
    17,500       15       (190 )     17,325       22,691       46       (218 )     22,519  
      20,483       45       (190 )     20,338       25,674       82       (218 )     25,538  
Held-to-maturity
                                                               
State, county and
                                                               
     municipal bonds     
    15,539       104       (697 )     14,946       15,762       131       (371 )     15,522  
Total investment securities
  $ 36,022     $ 149     $ (887 )   $ 35,284     $ 41,436     $ 213     $ (589 )   $ 41,060  
 
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.  Consideration is given to (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of Atlantic to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

The unrealized gains on investment securities available-for-sale were caused by interest rate changes.  Temporary net decreases in fair value of securities available-for-sale at June 30, 2008, of $145,000 (less deferred income taxes of $54,000) are regarded as an adjustment to stockholders' equity totaling $91,000.  The estimated fair value of securities is determined on the basis of market quotations.

At June 30, 2008, securities with an amortized cost of $866,000 and fair value of $895,000 were pledged to secure deposits of public funds from the State of Florida and treasury tax and loan deposits with the Federal Reserve.




ATLANTIC BANCGROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2008


NOTE 3 - INVESTMENT SECURITIES (Continued)

At June 30, 2008, securities were sold under an agreement to repurchase with a fair value of $19.2 million, which effectively collateralizes overnight customer repurchase agreements totaling $19.2 million.

There were no securities of a single issuer, which are non-governmental or non-government sponsored, that exceeded 10% of stockholders’ equity at June 30, 2008.


NOTE 4 - LOANS

Loans consisted of (dollars in thousands):

   
June 30,
   
December 31,
 
   
2008
   
2007
 
Real estate loans:
           
Construction, land development, and other land
  $ 48,898     $ 53,197  
1-4 family residential
    49,074       45,708  
Multifamily residential
    1,257       1,784  
Commercial
    87,423       86,785  
      186,652       187,474  
Commercial loans
    12,620       11,485  
Consumer and other loans
    4,444       5,138  
Total loan portfolio
    203,716       204,097  
Less, deferred fees
    (35 )     (37 )
Less, allowance for loan losses
    (2,123 )     (2,169 )
Loans, net
  $ 201,558     $ 201,891  


A summary of the activity in Other Real Estate Owned ( foreclosed assets ) for 2008 follows:

   
For the Three
   
For the Six
 
   
Months Ended
   
Months Ended
 
   
June 30, 2008
   
June 30, 2008
 
             
Balance, beginning of period
  $ 4,569,000     $ -  
Loans transferred to Other Real Estate Owned
               
(net of charge-offs and participations)
    350,000       5,539,000  
Sale of foreclosed assets
    (770,000 )     (1,390,000 )
Ending balance
  $ 4,149,000     $ 4,149,000  
                 
Costs charged to operating expenses for
               
foreclosed assets, net
  $ 45,000     $ 137,000  
Closing costs on disposal of foreclosed assets, net
    32,000       32,000  
Total direct costs of foreclosed assets
  $ 77,000     $ 169,000  




-10-


ATLANTIC BANCGROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2008


NOTE 5 - ALLOWANCE FOR LOAN LOSSES

Our Board of Directors monitors the loan portfolio quarterly in order to enable it to evaluate the adequacy of the allowance for loan losses.  We maintain the allowance for loan losses at a level that we believe to be sufficient to absorb probable losses inherent in the loan portfolio.  Activity in the allowance for loan losses follows (dollars in thousands):

   
For the Six
   
For the Twelve
 
   
Months Ended
   
Months Ended
 
   
June 30, 2008
   
December 31, 2007
 
             
Balance, beginning of period
  $ 2,169     $ 1,599  
Provisions charged to operating expenses
    885       629  
Loans, charged-off
    (951 )     (75 )
Recoveries
    20       16  
                 
Balance, end of period
  $ 2,123     $ 2,169  

We had two loans totaling $334,000 at June 30, 2008, categorized as nonaccrual, and eight loans totaling $6,222,000 categorized as nonaccrual at December 31, 2007. We had four loans totaling $2,230,000 past due 90 days or more and still accruing interest at June 30, 2008, compared with one loan totaling $164,000 at December 31, 2007. Loans over 90 days past due that are well secured and in process of collection remain on accrual status in accordance with regulatory guidelines.


NOTE 6 - OTHER BORROWINGS

A summary of other borrowings follows (dollars in thousands):
   
June 30,
   
December 31,
 
   
2008
   
2007
 
             
     Customer repurchase agreements
  $ 19,180     $ 13,816  
     Federal funds purchased
    -       4,372  
                 
          Total short-term borrowings
  $ 19,180     $ 18,188  
                 
     FHLB of Atlanta advances
  $ 2,300     $ 2,300  
     Junior subordinated debentures
    3,093       3,093  
                 
          Total long-term borrowings
  $ 5,393     $ 5,393  


NOTE 7 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

We are a party to credit-related financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers.  These financial instruments include commitments to extend credit, standby letters of credit, and commercial letters of credit.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the statements of financial condition.  Our exposure to credit loss is represented by the contractual amount of these commitments.  We follow the same credit policies in making commitments as we do for on-balance sheet instruments.  Financial instruments at June 30, 2008, consisted of commitments to extend credit approximating $24.3 million and standby letters of credit of $2.1 million.

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 us, is based on our credit evaluation of the customer.

-11-


ATLANTIC BANCGROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2008


NOTE 8 - REGULATORY CAPITAL

Oceanside is required to maintain certain minimum regulatory capital requirements.  The following is a summary at June 30, 2008, of the regulatory capital requirements and actual capital on a percentage basis for Oceanside:
         
Regulatory
 
   
Actual
   
Requirement
 
             
Total capital ratio to risk-weighted assets
    10.52 %     8.00 %
Tier 1 capital ratio to risk-weighted assets
    9.58 %     4.00 %
Tier 1 capital to average assets
    8.45 %     4.00 %
                 
Effective March 30, 2006, the Federal Reserve raised the threshold for reporting risk-based capital ratios for a Small Bank Holding Company from $150 million to $500 million.  Accordingly, we do not calculate or report risk-based capital ratios for the Holding Company.


NOTE 9 - RETAINED EARNINGS

Effective January 1, 2008, Atlantic recognized a postretirement benefit obligation associated with a collateral assignment arrangement.  Atlantic has substantive agreements with certain participants of its indexed retirement plan to maintain bank-owned life insurance policies during the postretirement period to provide a death benefit.  Under EITF 06-10, Atlantic also must recognize and measure the associated asset on the basis of the terms of the collateral assignment arrangement.

Accordingly, Atlantic increased its liability under the indexed retirement plan by $130,000 as of January 1, 2008.  Atlantic also recorded $81,000 (net of deferred income taxes of $49,000) as an adjustment to beginning retained earnings.  Under EITF 06-10, Atlantic elected to apply the provisions of this consensus as a cumulative effect adjustment to the opening balance of retained earnings as of January 1, 2008.


NOTE 10 - FAIR VALUE MEASUREMENTS

On January 1, 2008, Atlantic adopted Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”).  SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.  SFAS 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances.

SFAS 157 emphasizes that fair value is market-based measurement, not an entity-specific measurement.  Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability.  As a basis for considering market participant assumptions in fair value measurements, SFAS 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Level 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.  Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals.  Level 3 inputs are unobservable inputs for the asset or liabilities, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity.  In instances where more than one level of input exists for assets or liabilities, the lowest level of input that is significant to the fair value measurement in its entirety will be

-12-


ATLANTIC BANCGROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2008


NOTE 10 - FAIR VALUE MEASUREMENTS (Continued)

used in determining the fair value hierarchy.  Atlantic’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The table below presents the Atlantic’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall.

   
Quoted Prices
   
Significant
             
   
in Active
   
Other
   
Significant
       
   
Markets for
   
Observable
   
Unobservable
       
   
Identical Assets
   
Inputs
   
Inputs
       
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
Assets (dollars in thousands):
                       
   Investment securities, available-for-sale
  $ -     $ 20,338     $ -     $ 20,338  
                                 
Total assets at fair value
  $ -     $ 20,338     $ -     $ 20,338  




-13-


ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Commercial Banking Operations.   Atlantic, through its wholly-owned subsidiary, Oceanside, conducts commercial banking business consisting of attracting deposits and applying those funds to the origination of commercial, consumer, and real estate loans (including commercial loans collateralized by real estate) and purchases of investments.  Our profitability depends primarily on net interest income, which is the difference between interest income generated from interest-earning assets (principally loans, investments, and federal funds sold), less the interest expense incurred on interest-bearing liabilities (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 its interest-earning assets and the average rate paid on its 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, our profitability is affected by such factors as the level of noninterest income and expenses, the provision for loan losses, and the effective income tax rate. Noninterest income consists primarily of service fees on deposit accounts and mortgage banking fees. Noninterest expense consists of compensation and employee benefits, occupancy and equipment expenses, deposit insurance premiums paid to the FDIC, and other operating expenses.

Our corporate offices are located at 1315 South Third Street, Jacksonville Beach, Florida.  This location is also our main banking office for Oceanside, which opened July 21, 1997, as a state-chartered banking organization.  We also operate branch offices located at 560 Atlantic Boulevard, Neptune Beach, Florida, 13799 Beach Boulevard, and 1790 Kernan Boulevard South, Jacksonville, Florida.

Forward-looking Statements

When used in this Form 10-QSB, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements are subject to certain risks and uncertainties including changes in economic conditions in our market area, changes in policies by regulatory agencies, fluctuations in interest rates, demand for loans in our market area and competition, that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as to the date made.  We advise readers that the factors listed above, as well as others, 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.

Future Accounting Requirements

There are currently no pronouncements issued or that are scheduled for implementation during 2008 that are expected to have any significant impact on our accounting policies.

Impact of Inflation

The consolidated 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 our assets and liabilities 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 in 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, we seek to manage the relationships between interest-sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.


-14-


Critical Accounting Policies

Our accounting and reporting policies are in accordance with U.S. generally accepted accounting principles (“GAAP”), and they conform to general practices within the banking industry.  We use a significant amount of judgment and estimates based on assumptions for which the actual results are uncertain when we make the estimations.  We have identified our policy covering the allowance for loan losses as being particularly sensitive in terms of judgments and the extent to which significant estimates are used.  For more information on this critical accounting policy, please refer to our 2007 Annual Report on Form 10-KSB.


Results of Operations

Our net loss for the six months ended June 30, 2008, was $155,000, as compared with net income of $931,000, reported in the same period of 2007.  Average earning assets increased 5.3% for the first six months of 2008 over the same period of 2007.  For the three months ended June 30, 2008, the rate of growth in average interest earning assets slowed to 1.7% over the same period of 2007.  An overview of the more significant matters affecting our results of operations follows:

·
Average loans grew at a pace of $19.1 million, or 10.5%, for the six months ended June 30, 2008, over the same period of 2007.  With the growth in average certificates of deposit of $24.7 million or 20.0%, we were able to fund the increased loan demand.
·
Net interest income (before provision for loan losses) decreased $553,000, or 13.9%, for the six months ended June 30, 2008, over the same period in 2007.  This decrease is due primarily to lower yields on loans, while interest expense on deposits decreased at a slower pace.
·
Our results for 2008 included additional reserves set aside to offset loan charge-offs and real estate foreclosures during 2008.  The provision for loan losses for the first six months of 2008 totaled $885,000, rising 1327.4% over 2007 levels.
·
Total noninterest expenses increased $434,000, or 13.8%, for the six months ended June 30, 2008, over the same period in 2007.  This compares with the growth in earning assets of 5.3% for the same period.  The cost to manage the loan portfolio and carry foreclosed assets increased with direct expenses and losses for foreclosed assets charged to operations of $169,000 for the six months ended June 30, 2008.  Other related costs such as collection, legal, and audit expenses also rose at a faster pace. Pension expense reported in noninterest expenses increased $77,000 for the first six months of 2008 as compared with 2007, which was essentially offset by an increase in noninterest income of $54,000 from bank-owned life insurance used to fund the pension obligations.


Financial Condition

The following table shows selected ratios for the periods ended or at the dates indicated (annualized for the three and six months ended June 30, 2008):
   
Three Months
   
Six Months
   
Year Ended
 
   
Ended
   
Ended
   
December 31,
 
   
June 30, 2008
   
June 30, 2008
   
2007
 
                   
Return on average assets
    -0.32 %     -0.12 %     0.57 %
Return on average equity
    -4.28 %     -1.64 %     7.77 %
Interest-rate spread
    2.50 %     2.48 %     2.78 %
Net interest margin
    3.00 %     3.01 %     3.49 %
Noninterest expenses to average assets
    2.77 %     2.79 %     2.59 %


Liquidity and Capital Resources

Liquidity Management .  Liquidity management involves monitoring the sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits.  Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities.  Liquidity management is made more complicated because different statements of financial condition components are subject to varying degrees of management control.  For example, the timing of maturities of the investment portfolio is very predictable and subject to a high degree of control at the time investment decisions are made.  However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control. Asset liquidity is provided by cash and assets that are readily marketable, which can be pledged, or which will mature in the near future.  Liability liquidity is provided by access to core funding sources, principally the ability to generate customer deposits in our market area.  In addition, liability liquidity is provided through the ability to borrow against approved lines of credit (federal funds purchased) from correspondent banks and to borrow on a secured basis through securities sold under agreements to repurchase.

-15-




We expect to meet our liquidity needs with:

·
Available cash, including both interest and noninterest-bearing balances, and federal funds sold, which totaled $9.6 million at June 30, 2008;
·
The repayment of loans, which include loans with a remaining maturity of one year or less (excluding those in nonaccrual status) totaling $43.5 million;
·
Proceeds of unpledged securities available-for-sale and principal repayments from mortgage-backed securities;
·
Growth in deposits; and,
·
If necessary, borrowing against approved lines of credit and other alternative funding strategies.

Short-Term Investments.   Short-term investments, which consist of federal funds sold and interest-bearing deposits, were $5.3 million at June 30, 2008, as compared to $-0- at December 31, 2007.  These funds are a primary source of our liquidity and are generally invested in an earning capacity on an overnight basis.  We regularly review our liquidity position and have implemented internal policies that establish guidelines for sources of asset-based liquidity and limit the total amount of purchased funds used to support the statement of financial condition and funding from non-core sources.  To further enhance our liquidity, we have developed alternative funding strategies that have been approved by our Board of Directors.

Deposits and Other Sources of Funds .  In addition to deposits, the sources of funds available for lending and other business purposes include loan repayments, loan sales, securities sold under agreements to repurchase, and advances under approved borrowings from the Federal Home Loan Bank of Atlanta.  Loan repayments are a relatively stable source of funds, while deposit inflows and outflows are influenced significantly by general interest rates and money market conditions.  Borrowings may be used on a short-term basis to compensate for reductions in other sources, such as deposits at less than projected levels.

Core Deposits .  Core deposits, which exclude certificates of deposit of $100,000 or more, provide a relatively stable funding source for our loan portfolio and other earning assets.  We had core deposits totaling $170.7 million at June 30, 2008, and $159.7 million at December 31, 2007, an increase of 6.9%.  We anticipate that a stable base of deposits will be our primary source of funding to meet both short-term and long-term liquidity needs in the future.

Customers with large certificates of deposit tend to be extremely sensitive to interest rate levels, making these deposits less reliable sources of funding for liquidity planning purposes than core deposits.  Some financial institutions acquire funds in part through large certificates of deposit obtained through brokers.  These brokered deposits are generally expensive and are unreliable as long-term funding sources.  Brokered certificates of deposit issued by us totaled $28.9 million at June 30, 2008, and $17.9 million at December 31, 2007, an increase of 61.4%.

We use our resources principally to fund existing and continuing loan commitments and to purchase investment securities.  At June 30, 2008, we had commitments to originate loans totaling $24.3 million, and had issued, but unused, standby letters of credit of $2.1 million for the same period.  In addition, scheduled maturities of certificates of deposit during the twelve months following June 30, 2008, total $105.4 million.  We believe that adequate resources exist to fund all our anticipated commitments, and, if so desired, that we can adjust the rates and terms on certificates of deposit and other deposit accounts to retain deposits in a changing interest rate environment.

Capital .  We are subject to various regulatory capital requirements administered by the federal and state banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective actions, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.  The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.  FDIC’s Prompt Corrective Action regulations are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios (set forth in the following table) of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets (as defined in the regulations).  Management believes, as of June 30, 2008, that we met all minimum capital adequacy requirements to which we are subject.

-16-


As of the most recent reporting period for the quarter ended June 30, 2008, Oceanside’s ratios exceeded the minimum levels for the well-capitalized category.  An institution must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following tables.  At June 30, 2008, Oceanside’s actual capital amounts and percentages are presented in the following table (dollars in thousands):

   
Actual
   
Minimum (1)
   
Well-Capitalized (2)
 
   
Amount
   
%
   
Amount
   
%
   
Amount
   
%
 
                                     
Total capital to risk-weighted assets
  $ 23,808       10.52 %   $ 18,112       8.00 %   $ 22,640       10.00 %
Tier 1 capital to risk-weighted assets
  $ 21,686       9.58 %   $ 9,056       4.00 %   $ 13,584       6.00 %
Tier 1 capital to average assets
  $ 21,686       8.45 %   $ 10,266       4.00 %   $ 12,832       5.00 %
 
(1)
The minimum required for adequately capitalized purposes.
(2)
To be "well-capitalized" under the FDIC's Prompt Corrective Action regulations for banks.

There are no conditions or events since June 30, 2008, that management believes have changed Oceanside’s category.

Asset Quality

We have developed policies and procedures for evaluating the overall quality of our credit portfolio and the timely identification of potential problem loans.  Our judgment as to the adequacy of the allowance is based upon a number of assumptions about future events that we believe to be reasonable, but which may or may not be valid.  Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional increases in the loan loss allowance will not be required.

Asset Classification.   Commercial banks are required to review and, when appropriate, classify their assets on a regular basis.  The State of Florida and the FDIC have the authority to identify problem assets and, if appropriate, require them to be classified.  There are three classifications for problem assets: substandard, doubtful, and loss. Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected.  Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values questionable, and there is a high possibility of loss.  An asset classified as loss is considered uncollectible and of such little value that continuance as an asset of the institution is not warranted.  If an asset or portion thereof is classified as loss, the insured institution establishes a specific reserve for the full amount of the portion of the asset classified as loss.  All or a portion of general loss allowances established to cover possible losses related to assets classified as substandard or doubtful may be included in determining an institution's regulatory capital, while specific valuation allowances for loan losses generally do not qualify as regulatory capital.  Assets that do not warrant classification in the aforementioned categories, but possess weaknesses, are classified by us as special mention and monitored.

At June 30, 2008, we had 30 loans totaling approximately $18.5 million classified as substandard and 6 loans totaling approximately $0.7 million classified as doubtful.  We had no loans classified as loss at June 30, 2008.  At June 30, 2008, management had provided specific reserves totaling $0.9 million for loans risk-rated substandard or lower.

The sharp increase in loans classified substandard or lower from December 31, 2007, levels of $8.0 million reflect the general economic downturn in real estate activities in our trade area.  Substantially all of the net increase of $11.2 million is related to four loans totaling $11.3 million.  Three of the loans totaling $7.9 million are secured principally by residential condominiums or land for real estate development.  The remaining loan for $3.4 million is secured by a primary residence and surrounding acreage of approximately 17.8 acres.  Management believes that three of these loans totaling $6.9 million are well secured with specific reserves of $74,000.  The other loan of $4.4 million has specific reserves of $435,000 based on the estimated values of the collateral.

Allowance for Loan Losses .  The allowance for loan losses is established through a provision for loan losses charged against income.  Loans are charged against the allowance when we believe that the collectibility of principal is unlikely.  The provision is an estimated amount that we believe will be adequate to absorb probable losses inherent in the loan portfolio based on evaluations of its collectibility.  The evaluations take into consideration such factors as changes in the nature and volume of the portfolio, overall portfolio quality, specific problem loans and commitments, and current anticipated economic conditions that may affect the borrower's ability to pay.  While we use the best information available to recognize losses on loans, future additions to the provision may be necessary based on changes in economic conditions.

-17-




A summary of balances in the allowance for loan losses and key ratios follows (dollars in thousands):

   
For the Six
   
For the Twelve
 
   
Months Ended
   
Months Ended
 
   
June 30, 2008
   
December 31, 2007
 
             
End of period loans (net of deferred fees)
  $ 203,681     $ 204,060  
End of period allowance for loan losses
  $ 2,123     $ 2,169  
% of allowance for loan losses to total loans
    1.04 %     1.06 %
Average loans for the period
  $ 200,264     $ 187,544  
Net charge-offs as a percentage of average loans
               
    for the period (annualized for 2008)
    .93 %     0.03 %
Nonperforming assets:
               
      Nonaccrual loans
  $ 334     $ 6,222  
      Loans past due 90 days or more and still accruing (*)
    2,230       164  
      Foreclosed real estate
    4,149       -  
      Other repossessed assets
    68       -  
    $ 6,781     $ 6,386  
Nonperforming loans to period end loans
    1.26 %     3.13 %
Nonperforming assets to period end total assets
    2.57 %     2.44 %

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.  We monitor the effect of such risks by considering the mismatch of the maturities of our 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 our assets as planned.  However, we would be exposed to significant market risk in the event of significant and prolonged interest rate changes.

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 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 change 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.  There have been no significant changes in our market risk exposure since December 31, 2007.

 

-18-


Average Balances, Income and Expenses, and Rates

The following table depicts, for the periods indicated, certain information related to our average statements of financial condition and our average yields on assets and average costs of liabilities.  Such yields are derived by dividing income or expense by the average balance of the corresponding assets or liabilities.  Average balances have generally been derived from daily averages (dollars in thousands):

   
For the Three Months Ended June 30,
 
   
2008
   
2007
 
         
Interest
   
Average
         
Interest
   
Average
 
   
Average
   
and
   
Yield/
   
Average
   
and
   
Yield/
 
   
Balance
   
Dividends
   
Rate
   
Balance
   
Dividends
   
Rate
 
Interest-earning assets:
                                   
     Loans
  $ 198,878     $ 3,328       6.73 %   $ 181,389     $ 3,748       8.29 %
     Investment securities and
                                               
        interest-bearing deposits (1)
    38,161       426       5.56 %     42,297       478       5.37 %
     Other interest-earning assets
    2,159       12       2.24 %     11,567       155       5.37 %
                                                 
          Total interest-earning assets (1)
    239,198       3,766       6.50 %     235,253       4,381       7.62 %
                                                 
Noninterest-earning assets
    17,491                       13,507                  
                                                 
          Total assets
  $ 256,689                     $ 248,760                  
                                                 
Interest-bearing liabilities:
                                               
     Demand, money market
                                               
         and NOW deposits
  $ 40,078       233       2.34 %   $ 43,046       430       4.01 %
     Savings
    3,144       8       1.02 %     3,932       14       1.43 %
     Certificates of deposit
    147,833       1,712       4.66 %     130,902       1,703       5.22 %
     Other borrowings
    18,484       133       2.89 %     21,719       276       5.10 %
                                                 
          Total interest-bearing liabilities
    209,539       2,086       4.00 %     199,599       2,423       4.87 %
                                                 
Noninterest-bearing liabilities
    28,177                       31,275                  
Stockholders’ equity
    18,973                       17,886                  
          Total liabilities and
                                               
              stockholders’ equity
  $ 256,689                     $ 248,760                  
                                                 
Net interest income before
                                               
    provision for loan losses
          $ 1,680                     $ 1,958          
                                                 
Interest-rate spread
                    2.50 %                     2.75 %
Net interest margin (1)
                    3.00 %                     3.49 %
Ratio of average interest-earning assets
                                               
    to average interest-bearing liabilities
    114.15 %                     117.86 %                


(1)
Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental rate of 37.6% for purposes of computing the average yield/rate.

-19-



   
For the Six Months Ended June 30,
 
   
2008
   
2007
 
         
Interest
   
Average
         
Interest
   
Average
 
   
Average
   
and
   
Yield/
   
Average
   
and
   
Yield/
 
   
Balance
   
Dividends
   
Rate
   
Balance
   
Dividends
   
Rate
 
Interest-earning assets:
                                   
     Loans
  $ 200,264     $ 6,958       6.99 %   $ 181,182     $ 7,509       8.36 %
     Investment securities and
                                               
        interest-bearing deposits (1)
    39,478       884       5.54 %     40,717       920       5.32 %
     Other interest-earning assets
    1,542       20       2.61 %     7,215       194       5.42 %
                                                 
          Total interest-earning assets (1)
    241,284       7,862       6.72 %     229,114       8,623       7.73 %
                                                 
Noninterest-earning assets     
    16,943                       14,023                  
                                                 
           Total assets
  $ 258,227                     $ 243,137                  
                                                 
Interest-bearing liabilities:
                                               
     Demand, money market
                                               
         and NOW deposits
  $ 40,483       536       2.66 %   $ 44,411       889       4.04 %
     Savings
    3,041       18       1.19 %     4,359       32       1.48 %
     Certificates of deposit
    148,260       3,572       4.85 %     123,514       3,189       5.21 %
     Other borrowings
    19,189       324       3.40 %     21,686       548       5.10 %
                                                 
          Total interest-bearing liabilities
    210,973       4,450       4.24 %     193,970       4,658       4.84 %
                                                 
Noninterest-bearing liabilities
    28,247                       31,514                  
Stockholders’ equity
    19,007                       17,653                  
          Total liabilities and
                                               
               stockholders’ equity
  $ 258,227                     $ 243,137                  
                                                 
Net interest income before
                                               
    provision for loan losses
          $ 3,412                     $ 3,965          
                                                 
Interest-rate spread
                    2.48 %                     2.89 %
Net interest margin (1)
                    3.01 %                     3.63 %
Ratio of average interest-earning assets
                                               
    to average interest-bearing liabilities
    114.37 %                     118.12 %                


(1)
Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental rate of 37.6% for purposes of computing the average yield/rate.



-20-


Analysis of Changes in Net Interest Income

The following table sets forth, on a taxable equivalent basis, the effect which varying levels of interest-earning assets and interest-bearing liabilities and the applicable interest rates had on changes in net interest income for the three and six months periods ended June 30, 2008, compared to the same period in 2007.  For purposes of this table, changes which are not solely attributable to volume or rate are allocated to volume and rate on a pro rata basis (dollars in thousands):
 
   
Three Months Ended June 30, 2008
 
   
2008 vs. 2007
 
   
Increase (Decrease) Due to
 
               
Rate/
       
   
Rate
   
Volume
   
Volume
   
Total
 
Interest-earning assets:
                       
Loans
  $ (704 )   $ 360     $ (76 )   $ (420 )
Investment securities and interest-bearing deposits
    20       (55 )     (17 )     (52 )
Other interest-earning assets
    (90 )     (126 )     73       (143 )
Total interest-earning assets
    (774 )     179       (20 )     (615 )
                                 
Interest-bearing liabilities:
                               
Demand, money market and NOW deposits
    (179 )     (30 )     12       (197 )
Savings
    (4 )     (3 )     1       (6 )
Certificates of deposit
    (182 )     220       (29 )     9  
Other borrowings
    (119 )     (41 )     17       (143 )
Total interest-bearing liabilities
    (484 )     146       1       (337 )
                                 
Net interest income
  $ (290 )   $ 33     $ (21 )   $ (278 )
 
 
   
Six Months Ended June 30, 2008
 
   
2008 vs. 2007
 
   
Increase (Decrease) Due to
 
                   
Rate/
         
   
Rate
   
Volume
   
Volume
   
Total
 
Interest-earning assets:
                               
Loans
  $ (1,231 )   $ 791     $ (111 )   $ (551 )
Investment securities and interest-bearing deposits
    44       (33 )     (47 )     (36 )
Other interest-earning assets
    (101 )     (152 )     79       (174 )
Total interest-earning assets
    (1,288 )     606       (79 )     (761 )
                                 
Interest-bearing liabilities:
                               
Demand, money market and NOW deposits
    (304 )     (79 )     30       (353 )
Savings
    (6 )     (10 )     2       (14 )
Certificates of deposit
    (220 )     639       (36 )     383  
Other borrowings
    (183 )     (63 )     22       (224 )
Total interest-bearing liabilities
    (713 )     487       18       (208 )
                                 
Net interest income
  $ (575 )   $ 119     $ (97 )   $ (553 )
 
Comparison of Three Months Ended June 30, 2008 and 2007

Interest Income and Expense

Interest Income .  Interest income was $3,766,000 and $4,381,000 for the three months ended June 30, 2008 and 2007, respectively.  A decrease in yields on average interest-earning assets of 112 basis points, or 14.7%, was minimally offset by a favorable growth in average interest-earning assets of $3.9 million, or 1.7%, resulting in an overall decrease in interest income of $615,000, or 14.0%.  The decrease in yields was the result of the declining interest rate environment in which we operated during the first half of 2008 along with competitive factors.  Recent trends in community banking show declines in net interest margins below historical levels.  Average loans, as a percentage of average interest-earning assets, increased to 83.1% in the second quarter of 2008 as compared with 77.1% in 2007.

-21-




We saw a shift in the percentage of average investment securities to total interest-earning assets decrease to 16.0% in 2008 from 18.0% in 2007, while the percentage of average other interest-earning assets to total average interest-earning assets shifted from 4.9% in 2007 to 0.9% in 2008.

Interest Expense.   Interest expense was $2,086,000 and $2,423,000 for the three months ended June 30, 2008 and 2007, respectively.  While most average interest-bearing deposits and other borrowings declined, average certificates of deposit rose 12.9% in the quarter ended June 30, 2008, over the same period in 2007.  This resulted in an overall increase in average interest-bearing liabilities of $9.9 million, or 5.0%. Our average cost of funds (interest-bearing liabilities) decreased to 4.00% in 2008 compared with 4.87% over the same period in 2007, a decline of 17.9%.  A shift in the mix of our interest-bearing deposits, along with decreases in the overall interest rates in our market area, contributed to the decrease in our cost of funds.  Certificates of deposit, with an average cost of funds of 4.66% in 2008 and 5.22% in 2007, represented 70.6% of our total interest-bearing liabilities in 2008 as compared with 65.6% in 2007.  We also experienced declines in the rates we paid on other lower costing deposits and borrowed funds, which outpaced the decline in our cost of funds on certificates of deposit of 10.7%. The shift from lower costing deposits to higher costing deposits can be attributed, in part, to the current interest rate environment as customers seek higher returns on their deposits.

Net Interest Income before Provision for Loan Losses .  Net interest income before provision for loan losses was $1,680,000 and $1,958,000 for the three months ended June 30, 2008 and 2007, respectively.  The net interest margin for the second quarter of 2008 was 3.00% as compared with the net interest margin in 2007 of 3.49%, a decrease of 49 basis points, or 14.0%, which mirrors the overall declines in our yields and cost of funds of 14.7% and 17.9%, respectively.

Provision for Loan Losses

We recorded provisions for loan losses totaling $661,000 and $-0- for the three months ended June 30, 2008 and 2007, respectively, which management considered appropriate after its assessment of the overall quality of the loan portfolio and the recent downturn in the real estate market that has increased the number of classified and other loans we monitor.

Noninterest Income and Expenses

Noninterest Income.   Total noninterest income decreased by $24,000, or 7.9% for the three months ended June 30, 2008, to $281,000 compared with $305,000 for the same period in June 30, 2007.  Fees and service charges on deposit accounts decreased by $14,000, or 8.1%, in 2008 versus the same period in 2007, which is consistent with the overall declines in demand deposit balances of 7.9%.  Other fee income for banking services decreased $12,000, or 24.0%, due to decreases in usage and per item charges assessed by us for other banking services, principally for ATM and debit card usage.  Mortgage banking fees decreased $19,000, or 67.9%, during this period reflecting a downturn in the residential lending market. These decreases were offset by an increase in income from bank-owned life insurance of $28,000, or 100.0%.

Noninterest Expenses.   Salaries and employee benefits increased $17,000, or 2.2%, in the second quarter of 2008 over 2007.  Expenses of bank premises and fixed assets decreased $20,000, or 6.9%.  Other operating expenses increased $167,000, or 30.5%.  The more significant increases were:

·
higher data processing and settlement fees of $40,000;
·
increases in audit, legal, and professional fees of $21,000;
·
increases in software and telephone expense of $20,000; and
·
expenses related to other real estate owned, which were $77,000 in 2008 versus $-0- in 2007.

These increases are consistent with trends in our account and activity growth, additional costs to manage the loan portfolio and carry foreclosed assets, compliance with SOX 404, and inflationary increases in the overall cost of goods and services.
Pension expense increased $43,000 for the three months ended June 30, 2008, as compared with the same period in 2007.  Our noninterest income from bank-owned life insurance used to fund the pension obligations rose by $28,000.  Recent changes in the accounting for pension obligations funded with bank-owned life insurance also contributed to the overall cost of $9,000 (net of the income tax benefit of $6,000).



-22-


Provision (Benefit) for Income Taxes

An income tax summary follows (dollars in thousands):
 
   
Three Months Ended June 30,
 
   
2008
   
2007
 
Book income (loss)
  $ (467 )   $ 660  
Nontaxable interest income, net
    (169 )     (146 )
Other, net
    (68 )     (12 )
Taxable income (loss)
  $ (704 )   $ 502  
     Tax rate
    37.6 %     37.6 %
Tax provision (benefit)
  $ (265 )   $ 189  
     Effective tax rate
    56.7 %     28.6 %
 
The effective tax rates differ from the federal and state statutory rates of 37.6% principally due to nontaxable investment income.  Tax-exempt income was $169,000 for the second quarter of 2008 as compared with $146,000 in 2007, an increase of 15.8%.


Comparison of Six Months Ended June 30, 2008 and 2007

Interest Income and Expense

Interest Income .  Interest income was $7,862,000 and $8,623,000 for the six months ended June 30, 2008 and 2007, respectively.  A decrease in yields on average interest-earning assets of 101 basis points, or 13.1%, was partially offset by a favorable growth in average interest-earning assets of $12.2 million, or 5.3%, resulting in an overall decrease in interest income of $761,000, or 8.8%.  The decrease in yields was the result of the declining interest rate environment in which we operated during the first half of 2008 along with competitive factors.  Recent trends in community banking show declines in net interest margins below historical levels.  Average loans, as a percentage of average interest-earning assets, increased to 83.0% in 2008 as compared with 79.1% in 2007.

We saw a shift in the percentage of average investment securities to total interest-earning assets decrease to 16.4% in 2008 from 17.8% in 2007, while the percentage of average other interest-earning assets to total average interest-earning assets shifted from 3.1% in 2007 to 0.6% in 2008.

Interest Expense.   Interest expense was $4,450,000 and $4,658,000 for the six months ended June 30, 2008 and 2007, respectively.  While most average interest-bearing deposits and other borrowings declined, average certificates of deposit rose 20.0% for the six months ended June 30, 2008, over the same period of 2007.  This resulted in an overall increase in average interest-bearing liabilities of $17.0 million, or 8.8%.  During the first half of 2008, the interest rates on certificates of deposit declined 36 basis points, or 6.9%, which is not as rapid a decrease as we experienced on our interest-earning assets.  Our average cost of funds (interest-bearing liabilities) decreased to 4.24% in 2008 compared with 4.84% over the same period in 2007.  A shift in the mix of our interest-bearing deposits, along with decreases in the overall interest rates in our market area, contributed to the decrease in our cost of funds.  Certificates of deposit, with an average cost of funds of 4.85% in 2008 and 5.21% in 2007, represented 70.3% of our total interest-bearing liabilities in 2008 as compared with 63.7% in 2007.  We also experienced declines in the rates we paid on other lower costing deposits and borrowed funds, which outpaced the decline in our cost of funds on certificates of deposit.  The shift from lower costing deposits to higher costing deposits can be attributed, in part, to the current interest rate environment as customers seek higher returns on their deposits.

Net Interest Income before Provision for Loan Losses .  Net interest income before provision for loan losses was $3,412,000 and $3,965,000 for the six months ended June 30, 2008 and 2007, respectively.  The net interest margin for the first six months of 2008 was 3.01% as compared with the net interest margin in 2007 of 3.63%, a decrease of 62 basis points, or 17.1%.  Given our composition of interest-bearing liabilities, we experienced a slightly less rapid decrease in our cost of funds of 60 basis points (12.4%), while the rates we earned on our earning assets decreased by 101 basis points (13.1%) in the first six months of 2008 over the same period of 2007.  Our growth in interest-bearing liabilities of 8.8% outpaced the growth in interest earning assets of 5.3%, which impacts our net interest margin.



-23-


Provision for Loan Losses

We recorded provisions for loan losses totaling $885,000 and $62,000 for the six months ended June 30, 2008 and 2007, respectively, which management considered appropriate after its assessment of the overall quality of the loan portfolio and the recent downturn in the real estate market that has increased the number of classified and other loans we monitor.

Noninterest Income and Expenses

Noninterest Income.   Total noninterest income decreased by $8,000, or 1.4%, for the six months ended June 30, 2008, to $557,000 compared with $565,000 for the same period in June 30, 2007.  Fees and service charges on deposit accounts increased $3,000, or 0.9%, in 2008 versus the same period in 2007.  Other fee income for banking services decreased $29,000, or 28.2%, due to decreases in usage and per item charges assessed by us for other banking services, principally for ATM and debit card usage.  Mortgage banking fees decreased $29,000, or 72.5%, during this period reflecting a downturn in the residential lending market. These decreases were offset by an increase in income from bank-owned life insurance of $54,000, or 98.2%.

Noninterest Expenses.   Salaries and employee benefits increased $36,000, or 2.3%, in the first six months of 2008 over 2007.  Group insurance costs rose $48,000 while employee compensation, other benefits, and payroll tax costs declined $12,000.  Expenses of bank premises and fixed assets decreased $23,000, or 4.1%.  Other operating expenses increased $421,000, or 40.6%.  The more significant increases were:

·
higher data processing and settlement fees of $70,000;
·
increases in audit, legal, and professional fees of $81,000;
·
increases in regulatory assessments of $35,000;
·
increases in software and telephone expense of $51,000; and
·
expenses related to other real estate owned, which were $169,000 in 2008 versus $-0- in 2007.

These increases are consistent with trends in our account and activity growth, additional costs to manage the loan portfolio and carry foreclosed assets, compliance with SOX 404, and inflationary increases in the overall cost of goods and services.
 
Pension expense increased $77,000 for the six months ended June 30, 2008, as compared with the same period in 2007.  Our noninterest income from bank-owned life insurance used to fund the pension obligations rose by $54,000.  Recent changes in the accounting for pension obligations funded with bank-owned life insurance also contributed to the overall cost of $14,000 (net of the income tax benefit of $9,000).

 
Provision (Benefit) for Income Taxes

An income tax summary follows (dollars in thousands):
   
Six Months Ended June 30,
 
   
2008
   
2007
 
Book income (loss)
  $ (495 )   $ 1,323  
Nontaxable interest income, net
    (339 )     (256 )
Other, net
    (70 )     (24 )
Taxable income (loss)
  $ (904 )   $ 1,043  
     Tax rate
    37.6 %     37.6 %
Tax provision (benefit)
  $ (340 )   $ 392  
     Effective tax rate
    68.7 %     29.6 %


The effective tax rates differ from the federal and state statutory rates of 37.6% principally due to nontaxable investment income.  Tax-exempt income was $339,000 for the first six months of 2008 as compared with $256,000 in 2007, an increase of 32.4%.






-24-


ITEM 3.  CONTROLS AND P R OCEDURES

Background of Internal Controls and Internal Audits.   Oceanside is the sole financial subsidiary of Atlantic.  Oceanside has extensive policies and operating procedures in place 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.

Atlantic engages an external certified public accounting firm registered with the Public Company Accounting Oversight Board (“PCAOB”) to annually perform an independent audit, conducted in accordance with generally accepted auditing standards adopted by the PCAOB.

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 that evaluation, such officers 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.

-25-


ATLANTIC BANCGROUP, INC. AND SUBSIDIARY


PART II:
OTHER INFORMAT I ON

 
Item 1.
Legal Proceedings.

Periodically, we are 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.

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

An Annual Meeting of Shareholders was held on April 24, 2008.  At that meeting, a majority of the shareholders of record voted to elect a total of two Class I directors with terms to expire in 2011 (Proposal I); to ratify the Directors’ appointment of Mauldin, Jenkins, Certified Public Accountants, LLC, as the independent registered public accounting firm for Atlantic BancGroup, Inc., for the fiscal year ending December 31, 2008 (Proposal II); to approve the adjournment of the Annual Meeting to solicit additional proxies in the event that there were not sufficient votes to approve any one or more of the proposals at the 2008 Annual Meeting (Proposal III).

Proposal I

Class I Directors with Terms Expiring in 2011
Director
Votes For
Votes Against or
Withheld
Votes
Abstained
Frank J. Cervone
957,816
21,115
-
Barry W. Chandler
956,856
22,075
-

Proposal II

Votes For
Votes Against or
Withheld
Votes Abstained
957,276
20,695
960

Proposal III

Votes For
Votes Against or
Withheld
Votes Abstained
940,479
36,733
1,719



 
Item 6.
Exhibits.

Exhibit No .
Description of Exhibit

 
Legend

 
(a)
Incorporated by reference on Atlantic’s Form 10-KSB for year ended December 31, 1999
 
(b)
Incorporated by reference on Atlantic’s Form 10-KSB for year ended December 31, 2000
 
(c)
Incorporated by reference on Atlantic’s Form 10-KSB for year ended December 31, 2002
 
(d)
Incorporated by reference on Atlantic’s Form 10-KSB for year ended December 31, 2003
 
(e)
Incorporated by reference on Atlantic’s Form 10-QSB for quarter ended September 30, 2006


-26-


Exhibit No .
Description of Exhibit
   
3.1
Articles of Incorporation (a)
3.2
Bylaws (a)
4.1
Specimen Stock Certificate (a)
10.1
Software License Agreement dated as of October 6, 1997, between Oceanside and File Solutions, Inc. (a)
10.2
File Solutions Software Maintenance Agreement dated as of July 15, 1997, between Oceanside and SPARAK Financial Systems, Inc. (a)
10.3
Remote Data Processing Agreement dated as of March 3, 1997, between Oceanside and Bankers Data Services, Inc. (a)
10.4
Lease dated September 27, 2000, between MANT EQUITIES, LLC and Oceanside. (b)
10.5
Lease dated August 22, 2002, between PROPERTY MANAGEMENT SUPPORT, INC., and Oceanside. (c)
10.6
Change in Control Agreement for Barry W. Chandler. (e)
10.7
Change in Control Agreement for David L. Young. (e)
10.8
Change in Control Agreement for Grady R. Kearsey. (e)
14
Code of Ethics for Senior Officers Policy. (d)
31.1
Certifications of Principal Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act
31.2
Certifications of Principal Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Exchange Act
32.1
Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2
Certifications of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002

-27-

 
SIGN A TURES



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



 
Atlantic BancGroup, Inc.
   
   
   
   
Date:   August 14, 2008
/s/ Barry W. Chandler
 
Barry W. Chandler
 
President and Principal Executive Officer
   
   
   
Date:   August 14, 2008
/s/ David L. Young
 
David L. Young
 
Executive Vice President,
 
Principal Financial Officer, and
 
Corporate Secretary


-28-





Atlantic Bancgrp. (MM) (NASDAQ:ATBC)
Gráfica de Acción Histórica
De May 2024 a Jun 2024 Haga Click aquí para más Gráficas Atlantic Bancgrp. (MM).
Atlantic Bancgrp. (MM) (NASDAQ:ATBC)
Gráfica de Acción Histórica
De Jun 2023 a Jun 2024 Haga Click aquí para más Gráficas Atlantic Bancgrp. (MM).