- Amended Annual Report (10-K/A)

U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

for the fiscal year ended December 31, 2009

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-15061

ATLANTIC BANCGROUP, INC.

(Exact name of registrant as specified in its charter)

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

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

Registrant’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)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.

YES o NO T

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

YES o NO T

Indicate by check mark whether the registrant 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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES T NO o

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

	Large accelerated filer o	Accelerated filer o
	Non-accelerated filer o	Smaller reporting company T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO T

The aggregate market value of the registrant’s common stock held by non-affiliates at June 30, 2009: $5,268,979.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

The number of shares outstanding of the registrant’s common stock as of August 9, 2010: 1,247,516.

DOCUMENTS INCORPORATED BY REFERENCE

Certain exhibits as noted in Part IV, Item 15, of the Annual Report on Form 10-K are incorporated by reference.

EXPLANATORY NOTE

This Amendment on Form 10-K/A (the “Amendment”) amends our annual report for the fiscal year ended December 31, 2009, originally filed with the Securities and Exchange Commission (“SEC”) on April 15, 2010 (the “Original Report”). We are filing this Amendment to address comments received from the SEC’s staff subsequent to filing our Original Report. In response to such comments, we have amended the Original Report to include revised disclosures concerning our loan classifications, allowance for loan and lease losses (“ALLL”), loans and nonperforming assets identified by the Federal Deposit Insurance Corporation (‘FDIC”) in its November 2008 examination (“exam”), and the tracking of FDIC-identified loans and nonperforming assets as required under the Consent Order executed January 7, 2010. Also, the Report of Registered Public Accounting Firm on page 51 of the Original Report omitted the required evidence of the signature of the accounting firm that issued its report on our financial statements.

Specifically, the revised disclosures in the Amendment:

·	Identified the composition of assets classified by the FDIC in its November 2008 exam and the issues identified by the FDIC that gave rise to their classifications.

·	Address how the required reductions in the classified assets are expected to affect our losses.

·	More clearly describe how the regulatory requirement to reduce these balances was considered in developing our allowance for loan losses at December 31, 2009 and for interim periods in 2010.

We also revised our references to conform to the recent Accounting Standards Codification for the following:

·	ASC 450-20 (formerly SFAS No. 5, Accounting for Contingencies )

·	ASC 310-10-35 (formerly SFAS No. 114, Accounting by Creditors for Impairment of a Loan )

Except for the Report of Registered Public Accounting Firm on page 51 of the Original Report, all of the revisions described above appear in the section “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” No other information in the Original Report, other than the filing of the revised disclosures, is amended hereby. Therefore, Item 7, Item 8 (page 51 only), and Item 15 are contained in this Amendment. Except for the foregoing, the Amendment speaks as of the filing date of the Original Report and does not update or discuss any other Company developments after the date of the Original Report.

ATLAN TIC BANCGROUP, INC. AND SUBSIDIARIES

Table of Contents

		Page
PART II

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	1


Item 8.	Financial Statements and Supplementary Data -
	Report of Registered Public Accounting Firm	31


PART IV

Item 15.	Exhibits	66

	Signatures	67

Table of Contents

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Management’s discussion and analysis is included to provide the shareholders with an expanded narrative of our results of operations, changes in financial condition, liquidity, and capital adequacy. This narrative should be reviewed in conjunction with the audited consolidated financial statements and notes included in this report. Since our primary asset is our wholly-owned subsidiary, Oceanside Bank, most of the discussion and analysis relates to Oceanside.

Overview

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 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 factors that influence net interest income include changes in interest rates and changes in the volume and mix of assets and liability balances. 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, other fee income for banking services, and income from bank-owned life insurance. Noninterest expense consists of compensation and employee benefits, occupancy and equipment expenses, regulatory assessments, 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, the Bank, and the Bank’s wholly-owned subsidiaries. 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. Our significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements . The majority of these accounting policies do not require our management to make difficult, subjective, or complex judgments. However, we believe the allowance for loan losses, the valuation of foreclosed assets, the realization of deferred tax assets, other-than-temporary impairments of securities, and the fair value of financial instruments are critical estimates.

Allowance for Loan Losses . The allowance for loan losses is a valuation allowance for probable or incurred credit losses. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed (that is, a confirmed loss exists). Subsequent recoveries, if any, are credited to the allowance.

Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management's judgment, should be charged-off.

The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful (impaired). The general component covers non-classified loans and is based on historical loss experience adjusted for current trends.

Loans are individually evaluated for impairment, if significant. A loan is impaired when full payment under the loan terms is not expected. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan's existing rate or at the fair value of collateral if repayment is expected solely from the collateral and accrual of interest is discontinued.

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. There is no precise method of predicting specific loan losses or amounts that ultimately may be charged-off. Also, this evaluation is inherently subjective as it requires estimates

- 1 -

Table of Contents

that are susceptible to significant revision as more information becomes available. The determination that a loan may be uncollectible, in whole or in part, is a matter of judgment. Similarly, the adequacy of the allowance for loan losses can be determined only on a judgmental basis, after full review, including, consideration of economic conditions and their effect on particular industries and specific borrowers; a review of borrowers' financial data, together with industry data, their competitive situation, the borrowers' management capabilities and other factors; a continuing evaluation of the loan portfolio, including monitoring any loans that are identified as being of less than acceptable quality; a detailed analysis, on a quarterly basis, of all impaired loans; and an evaluation of the underlying collateral for secured lending.

We maintain a formalized loan review process supported by a credit analysis and control system. We intend to maintain the allowance for loan losses at a level sufficient to absorb estimated uncollectible loans and, expect to make periodic additions to the allowance for loan losses, when warranted.

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 valuation of foreclosed assets, the realization of deferred tax assets, other-than-temporary impairments of securities, and the fair value of financial instruments.

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 and to support the carrying value of foreclosed assets, we obtain 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 we use available information to recognize losses on loans, further reductions in the carrying amounts of loans or 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 the 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.

Management’s determination of the realization of deferred tax assets is based upon management’s judgment of various future events and uncertainties, including the timing, nature, and amount of future income earned by certain subsidiaries and the implementation of various plans to maximize realization of deferred tax assets.

Atlantic has recorded a deferred tax asset (net of valuation allowances) to recognize the future income tax benefit of operating losses incurred for tax years 2009 and 2008. Management believes that the tax benefits on the net operating loss carry forwards will be utilized when Atlantic returns to profitability. Generally, the net operating losses can be carried forward for up to 20 years.

On November 6, 2009, the “Worker, Homeownership, and Business Assistance Act of 2009” was signed into law, which relaxed the net operating loss carryback rules. As a result of this law, Atlantic was able to carryback net operating losses to obtain an estimated tax refund of $1.035 million.

In estimating the carrying value of deferred tax assets, management considered the cumulative loss position, projected taxable income, and available tax strategies in developing the analysis of any required deferred income tax asset valuation as of December 31, 2009 and 2008.

For the year ended December 31, 2009 :

Cumulative losses in recent quarters suggested the need for a valuation allowance. However, management believed that this negative evidence was partially offset by the following positive evidence, which mitigated the need for reducing the carrying value (net of valuation allowances) to zero:

- 2 -

Table of Contents

·	Atlantic has a prior history of taxable earnings prior to losses that began in 2008. Since inception in 1997, Atlantic has reported taxable income in 10 of 12 years through 2008, with cumulative taxable income of nearly $9.0 million through 2008.

Atlantic has reported and believes that changes have been made to allow Atlantic to return to a taxable earnings position, including reductions in payroll and other operating costs. Within the next 2-5 years, internal projections indicate that book and taxable income are more likely than not to return to levels approaching those prior to 2008.

Management has received and considered offers to purchase two of its branch locations and relocate to leased space (or lease-back its existing facilities). While the sale-leaseback would not likely generate significant book income immediately, the taxable income was projected to exceed $1.3 million.

·	Management and the Board of Directors have discussed a tax strategy that would generate taxable income of approximately $1.2 from the liquidation of bank-owned life insurance policies.

·	Converting tax-exempt investment income to taxable investment income, which could increase taxable income by almost $1.0 million and book income by $0.4 million.

·	Repurchase of junior subordinated debentures at a discount.

·	Termination of all or a portion of the Bank’s deferred compensation plan, which would generate up to $1.6 million in book taxable income and reduce the deferred tax asset by $0.6 million.

Based on the above analysis, management believes it is more likely than not that Atlantic will realize the deferred tax asset of $0.7 million at December 31, 2009 (net of a valuation allowance of $2.8 million) through future operating income and implementation of certain tax strategies.

For the year ended December 31, 2008 :

Management considered the cumulative losses in 2008 and the anticipated net operating loss for 2009 when determining whether or not to provide a valuation allowance on the deferred tax asset. The economic conditions and Atlantic’s level of non-performing assets were taken into consideration as well, which at December 31, 2009, had stabilized.

At December 31, 2008, management believed that the negative evidence was outweighed by certain positive evidence. Atlantic had a prior history of earnings outside of the recent losses and believed that changes have been made to allow Atlantic to return to an earnings position, including reductions in payroll and other operating costs. At that time, management believed it was more likely than not that Atlantic would realize the deferred tax asset through future operating income. Accordingly, no deferred tax valuation allowance was recorded at December 31, 2008.

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 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 assets as planned. However, we are exposed to significant market risk in the event of significant and prolonged interest rate changes.

Regulatory Environment . We are subject to regulations of certain federal and state agencies and, accordingly, are 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 and state legislation and regulations.

During 2010, we entered into a formal agreement with the FDIC, the OFR, and the Federal Reserve Bank of Atlanta, as discussed in Note 1 of the Notes to Consolidated Financial Statements .

COMPARISON OF YEARS ENDED DECEMBER 31, 2009 AND 2008

Highlights . As of December 31, 2009, we had approximately $297.4 million in total assets, with $200.7 million in total loans, $270.0 million in deposits, and $9.7 million in stockholders’ equity.

The net loss in 2009 was $7,240,000 versus a net loss of $1,927,000 in 2008. The primary reasons for the change of $5,313,000 in 2009 over 2008 were as follows:

- 3 -

Table of Contents

·	Our income from average interest-earning assets decreased 9.4%.

·	Our provision for loan losses increased $1,844,000, or 41.7%, over 2008.

·	Noninterest income declined $758,000, or 50.2% in 2009 over 2008.

·	Noninterest expenses grew $842,000, or 11.0%.

·	The establishment of a deferred tax valuation allowance of $2,768,000 in 2009 caused the income tax provision to increase by $2,019,000.

Interest Income . Interest income was $13,895,000 and $15,335,000 in 2009 and 2008, respectively. The decrease of $1.4 million resulted from a decrease in the yield on interest-earning assets in 2009, which was partially offset by growth in our most significant interest-earning asset, loans, which grew 1.2% from average levels in 2008 to 2009. Average loans accounted for 81.9% of our average interest-earning assets in 2009 versus 83.9% in 2008. Our overall yield on interest-earning assets of 5.68% was down from the 2008 level of 6.49% due to a lower interest rate environment throughout 2009. Our overall yield on interest-earning assets in 2009 would have been 21 basis points higher, or 5.89%, if not for approximately $533,000 in income earned but not collected on nonaccrual loans.

Interest Expense. Interest expense was $6,800,000 and $8,390,000 in 2009 and 2008, respectively. As a result of the lower interest rate environment during 2009 which was partially offset by our growth in average interest-bearing liabilities of $33.5 million, or 15.7%, during this period, interest expense decreased 19.0%. Our cost of funds dropped to 2.76% in 2009 compared with 3.94% in 2008. Substantially all of the decrease in interest expense was attributable to a decrease in rates, which was partially offset by an increase in average demand deposits of $46.6 million, or 110.8%. A decrease in average certificates of deposit of $7.8 million, or 5.3%, and in average other borrowings of $5.2 million, or 24.8%, also contributed to the decrease in interest expense.

Net Interest Income . Net interest income (before provision for loan losses) was $7,095,000 and $6,945,000 for 2009 and 2008, respectively, an increase of 2.2% from 2008 to 2009. The average balances, interest income and expense, and the average rates earned and paid for assets and liabilities are found in the tables that follow.

Our net interest margin was lower (2.98% in 2009 compared with 3.03% in 2008), which reflects our growth in deposits, net of a decrease in other borrowings, of $33.5 million, or 15.7%, versus a slower rate of growth for interest-earning assets of $9.1 million, or 3.8%. The increase in net interest income of $150,000 was impacted by the significant increase in lower earning demand deposits and decreased by the declining rates.

Provision for Loan Losses . A provision for loan losses of $6,268,000 was recorded in 2009, reflecting our assessment of the needed level of the allowance for loan losses. This assessment is based on management’s evaluation of probable loan losses and considers the overall quality of the loan portfolio. The increase in the provision for loan losses in 2009 versus the 2008 level of $4,424,000 was due to unfavorable trends in most measures of loan portfolio quality, including the growth in impaired, nonaccrual, and other restructured loans. Net charge-offs in 2009 were $3,736,000 as compared with $2,594,000 in 2008, an increase of $1,142,000.

Noninterest Income . Noninterest income decreased $758,000, or 50.2%, to $751,000 in 2009 from $1,509,000 in 2008 primarily as a result of:

·	A decrease in gains on the sale of securities from $346,000 to $56,000;

·	Losses on the sale of foreclosed assets of $142,000 in 2009 versus a gain of $4,000 in 2008; and

·	A loss of $179,000 on restricted stock issued by a correspondent bank that was taken over by the FDIC in 2009.

Noninterest Expenses . Total noninterest expenses increased to $8,491,000 in 2009 compared to $7,649,000 for 2008, an increase of $842,000, or 11.0%. The more significant increases during 2009 over 2008 follow:

·	The cost of deposit insurance assessments soared from $229,000 in 2008 to $1,014,000 in 2009, an increase of $785,000, or 342.8%, as a result of increased assessments from the FDIC.

Processing and settlement fees increased from $773,000 in 2008 to $836,000 in 2009, an increase of $63,000, or 8.2%. Through 2008, statements were rendered in-house and the expense was recorded as postage, stationary, and supplies. At the beginning of 2009, the statement rendering process was outsourced and all related costs were recorded as processing and settlement fees. As a result, there was a reduction in postage, stationary, and supplies in 2009.

·	The Company expensed $177,000 in 2009 for costs to raise capital to meet regulatory requirements versus $-0- in 2008.

- 4 -

Table of Contents

·	The write-down of other real estate owned totaled $586,000 in 2009 versus $315,000 in 2008, as a result of the continued decline in real estate values in 2009.

·	Professional, legal, and accounting fees were $589,000 in 2009 versus $459,000 in 2008, an increase of $130,000, or 28.3%, as a result of increased costs of corporate governance, regulatory compliance, and addressing regulatory enforcement actions.

As a result of cost-cutting measures to improve profitability, the following costs decreased during 2009:

·	Salaries and employee benefits decreased by $282,000, or 9.0%.

·	Expenses of bank premises and fixed assets decreased by $63,000, or 5.8%.

·	Directors fees were eliminated, decreasing costs by $78,000.

·	Advertising and business development decreased by $50,000, or 34.5%. Stationery, printing, and supplies decreased by $36,000, or 33.6%.

Provision for Income Taxes. The income tax provision was $327,000 for 2009, an effective rate of (4.7)%. This compares with an effective rate of 46.8% for 2008. The effective tax rate for 2009 differs from the federal and state statutory rates principally due to the establishment of a valuation allowance for the deferred tax asset of $2,768,000. The effective tax rate in 2008 differs from the federal and state statutory rates principally due to nontaxable investment income.

COMPARISON OF YEARS ENDED DECEMBER 31, 2008 AND 2007

Highlights . As of December 31, 2008, we had grown to approximately $268.0 million in total assets, with $207.1 million in total loans, $239.8 million in deposits, and $16.9 million in stockholders’ equity.

The net loss in 2008 was $1,927,000 versus net income of $1,406,000 in 2007. The primary reasons for the change of $3,333,000 in 2008 over 2007 were as follows:

·	Interest and fees on loans totaled $13,637,000 in 2008 compared with $15,255,000 in 2007, a decrease of $1,618,000, or 10.6%. Other interest income also declined $415,000 in 2008 over 2007, or 19.6%.

·	Our income from average interest-earning assets decreased 11.7%.

·	Our total interest expense decreased $1,201,000, or 12.5%.

·	Net interest income declined by $832,000 in 2008 from 2007.

·	Noninterest income grew $390,000, or 34.9% in 2008 over 2007.

·	Noninterest expenses grew $1,236,000, or 19.3%.

Interest Income . Interest income was $15,335,000 and $17,368,000 in 2008 and 2007, respectively. The decrease of $2.0 million resulted from a decrease in the yield on interest-earning assets in 2008, which was partially offset by growth in our most significant interest-earning asset, loans, which grew 8.6% from average levels in 2007 to 2008. Average loans accounted for 83.9% of our average interest-earning assets in 2008 versus 80.4% in 2007. Our overall yield on interest-earning assets of 6.49% was down from the 2007 level of 7.60% due to a lower interest rate environment throughout 2008. Our overall yield on interest-earning assets in 2008 would have been 7 basis points higher, or 6.56%, if not for approximately $176,000 in income earned but not collected on nonaccrual loans.

Interest Expense. Interest expense was $8,390,000 and $9,591,000 in 2008 and 2007, respectively. As a result of the lower interest rate environment during 2008 which was partially offset by our growth in average interest-bearing liabilities of $13.9 million, or 7.0%, during this period, interest expense decreased 12.5%. Our cost of funds dropped to 3.94% in 2008 compared with 4.82% in 2007. Substantially all of the decrease in interest expense was attributable to a decrease in rates, which was partially offset by an increase in average certificates of deposit of $17.3 million, or 13.4%.

Net Interest Income . Net interest income (before provision for loan losses) was $6,945,000 and $7,777,000 for 2008 and 2007, respectively, a decrease of 10.7% from 2007 to 2008. The average balances, interest income and expense, and the average rates earned and paid for assets and liabilities are found in the tables that follow.

Our net interest margin was lower (3.03% in 2008 compared with 3.49% in 2007), which reflects the smaller decrease in our cost of funds (88 basis points) versus the decrease in our yield on interest-earning assets (111 basis points). The decrease in net interest income of $832,000 was impacted by the declining rate environment, while the

- 5 -

Table of Contents

net interest margin was most impacted by the increase in certificates of deposit of 13.4%. Certificates of deposit account for 76.5% of all interest-bearing deposits in 2008 as compared with 73.5% in 2007.

Provision for Loan Losses . A provision for loan losses of $4,424,000 was recorded in 2008, reflecting our assessment of the needed level of the allowance for loan losses. This assessment is based on management’s evaluation of probable loan losses and considers the overall quality of the loan portfolio. The increase in the provision for loan losses in 2008 versus the 2007 level of $629,000 was due to unfavorable trends in most measures of loan portfolio quality, including the growth in impaired and nonaccrual loans and other nonperforming assets, which increased $4.2 million in 2008, or 65.9%. Other real estate owned of $3.4 million at December 31, 2008, accounted for 81.1% of the increase. Included in other real estate owned is a condominium development at Jacksonville Beach with 9 units remaining at December 31, 2008. Of the original 14 units acquired in foreclosure in the first quarter of 2008, 5 units sold in the remainder of 2008, leaving a carrying value of $2.0 million at December 31, 2008. In the first quarter of 2009, 2 additional units have sold for net proceeds in excess of the individual carrying value of the units sold. Net charge-offs in 2008 were $2,594,000 as compared with $59,000 in 2007, an increase of $2,535,000.

Noninterest Income . Noninterest income increased $390,000, or 34.9%, to $1,509,000 in 2008 from $1,119,000 in 2007 primarily as a result of gains on the sale of securities of $346,000 in the fourth quarter of 2008.

Noninterest Expenses . Total noninterest expenses increased to $7,649,000 in 2008 compared to $6,413,000 for 2007, an increase of $1,236,000, or 19.3%. The more significant increases during 2008 over 2007 follow:

·	Expenses related to other real estate owned totaled $807,000 in 2008 versus $-0- in 2007, as a result of losses and ongoing expenses on properties that Oceanside obtained title in 2008.

·	Professional, legal, and audit fees were $459,000 in 2008 versus $264,000 in 2007, an increase of $195,000, or 73.9%, as a result of increased costs of corporate governance and regulatory compliance matters.

·	Pension expense totaled $294,000 in 2008, an increase of 63.3% from 2007. This increase of $114,000 was more than offset by the net increase in the cash surrender value of the life insurance policies, which totaled $206,000.

·	Regulatory assessments increased by $60,000, or 35.5%, from 2007 to 2008 due to increased cost of maintaining the FDIC insurance fund.

Provision for Income Taxes. The income tax benefit was $1,692,000 for 2008, an effective rate of 46.8%. This compares with an effective rate of 24.2% for 2007. The effective tax rates in 2008 and 2007 differ from the federal and state statutory rates principally due to nontaxable investment income. The growth of tax-exempt income in 2008 over 2007 of 13.1%, compared with the overall decline in taxable interest, which contributed to the swing in the effective tax rate.

[Remainder of page left intentionally blank.]

- 6 -

Table of Contents

Rate/Volume Analysis (dollars in thousands):

	Years Ended December 31,
	2009								2008								2007
						Average								Average								Average
	Average					Yield/			Average					Yield/			Average					Yield/
	Balance			Interest		Rate			Balance			Interest		Rate			Balance			Interest		Rate
Interest-earning assets:
Loans (1)	$	206,188		$	12,354		5.99	%	$	203,675		$	13,637		6.70	%	$	187,544		$	15,255		8.13	%
Securities and deposits (2)		45,015			1,540		4.31			36,995			1,663		5.59			41,696			1,886		5.38
Other interest-earning assets (3)		549			1		0.18			1,978			35		1.77			4,099			227		5.54
Total interest-earning
assets (2)		251,752			13,895		5.68	%		242,648			15,335		6.49	%		233,339			17,368		7.60	%

Noninterest-earning assets		46,326								17,381								14,335

Total assets	$	298,078							$	260,029							$	247,674

Interest-bearing liabilities:
Demand deposits	$	88,744			1,530		1.72	%	$	42,108			996		2.37	%	$	42,858			1,683		3.93	%
Savings		2,858			28		0.99			2,988			33		1.10			3,751			56		1.49
Certificates of deposit		138,791			4,710		3.39			146,595			6,741		4.60			129,313			6,726		5.20
Other borrowings		15,833			532		3.36			21,046			620		2.95			22,888			1,126		4.92

Total interest-bearing
liabilities		246,226			6,800		2.76	%		212,737			8,390		3.94	%		198,810			9,591		4.82	%

Noninterest-bearing liabilities		36,011								28,718								30,778
Stockholders’ equity		15,841								18,574								18,086

Total liabilities and
stockholders’ equity	$	298,078							$	260,029							$	247,674

Net interest income (before
provision for loan losses)				$	7,095							$	6,945							$	7,777

Interest-rate spread (4)							2.92	%							2.55	%							2.78	%

Net interest margin (2) (5)							2.98	%							3.03	%							3.49	%

Ratio of average interest-earning
assets to average
interest-bearing
liabilities		102.24	%							114.06	%							117.37	%

(1)

Average loan balances include nonaccrual loans, which averaged (in thousands) $7,031, $5,130, and $5,853 in 2009, 2008, and 2007, respectively. Average loans are net of deferred fees. Loan fees (in thousands) were $206, $416, and $536 in 2009, 2008, and 2007, respectively. Loan yields have been reported in total since a substantial portion of loans are secured by real estate.

(2)

Tax-exempt income has been adjusted to a tax-equivalent basis using an incremental rate of 37.6%. Includes interest-earning deposits.

(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.

- 7 -

Table of Contents

Rate/Volume Analysis (dollars in thousands):

	Year Ended December 31,
	2009 vs. 2008
	Increase (Decrease) Due to
							Rate/
	Rate			Volume			Volume			Total
Interest-earning assets:
Loans (1)	$	(1,433	)	$	168		$	(18	)	$	(1,283	)
Securities and other deposits		(398	)		360			(85	)		(123	)
Other interest-earning assets (2)		(31	)		(25	)		22			(34	)
Total interest-earning assets		(1,862	)		503			(81	)		(1,440	)

Interest-bearing liabilities:
Demand deposits		(270	)		1,103			(300	)		533
Savings		(3	)		(1	)		-			(4	)
Certificates of deposit		(1,766	)		(359	)		94			(2,031	)
Other borrowings		87			(154	)		(21	)		(88	)

Total interest-bearing liabilities		(1,952	)		589			(227	)		(1,590	)

Net interest income	$	90		$	(86	)	$	146		$	150

	Year Ended December 31,
	2008 vs. 2007
	Increase (Decrease) Due to
							Rate/
	Rate			Volume			Volume			Total
Interest-earning assets:
Loans (1)	$	(2,698	)	$	1,312		$	(232	)	$	(1,618	)
Securities and other deposits		(12	)		(213	)		2			(223	)
Other interest-earning assets (2)		(154	)		(117	)		79			(192	)
Total interest-earning assets		(2,864	)		982			(151	)		(2,033	)

Interest-bearing liabilities:
Demand deposits		(669	)		(29	)		11			(687	)
Savings		(15	)		(11	)		3			(23	)
Certificates of deposit		(780	)		899			(104	)		15
Other borrowings		(452	)		(91	)		37			(506	)

Total interest-bearing liabilities		(1,916	)		768			(53	)		(1,201	)

Net interest income	$	(948	)	$	214		$	(98	)	$	(832	)

(1)

Average loan balances include nonaccrual loans.

(2)

Includes federal funds sold.

- 8 -

Table of Contents

Weighted Average Yield or Rate:

	For the Years Ended December 31,
	2009			2008			2007
Interest-earning assets:
Loans, net		5.99	%		6.70	%		8.13	%
Investment securities		4.31			5.59			5.38
Other interest-earning assets		0.18			1.77			5.54
All interest-earning assets		5.68			6.49			7.60
Interest-bearing liabilities:
NOW deposits		0.27			0.70			1.31
Money market deposits		2.23			2.77			4.22
Savings		0.99			1.10			1.49
Certificates of deposit		3.39			4.60			5.20
Other borrowings		3.36			2.95			4.92
All interest-bearing liabilities		2.76			3.94			4.82
Interest-rate spread		2.92			2.55			2.78
Net interest margin		2.98			3.03			3.49

Change in Mix of Interest-Earning Assets and Interest-Bearing Deposits and Other Borrowings (dollars in thousands):

	At December 31,
	2009					2008					2007
			Percent					Percent					Percent
	Average		to			Average		to			Average		to
	Balance		Total			Balance		Total			Balance		Total
Interest-earning assets:
Loans, net	$	206,188		81.9	%	$	203,675		83.9	%	$	187,544		80.4	%
Investment securities		45,015		17.9	%		36,995		15.3	%		41,696		17.9	%
Other		549		0.2	%		1,978		0.8	%		4,099		1.7	%

Total interest-earning assets	$	251,752		100.0	%	$	242,648		100.0	%	$	233,339		100.0	%

Interest-bearing deposits:
Demand deposits	$	88,744		31.6	%	$	42,108		17.5	%	$	42,858		18.8	%
Savings		2,858		1.0	%		2,988		1.2	%		3,751		1.7	%
Certificates of deposit		138,791		49.5	%		146,595		61.0	%		129,313		56.7	%

Total interest-bearing deposits		230,393		82.1	%		191,691		79.7	%		175,922		77.2	%

Noninterest-bearing deposits		34,438		12.3	%		27,504		11.5	%		29,335		12.9	%

Total deposits		264,831		94.4	%		219,195		91.2	%		205,257		90.1	%

Other borrowings		15,833		5.6	%		21,046		8.8	%		22,888		9.9	%

Total deposits and
other borrowings	$	280,664		100.0	%	$	240,241		100.0	%	$	228,145		100.0	%

LOAN PORTFOLIO

Average loans receivable were $206,188,000 for the year 2009 as compared to $203,675,000 for 2008, an increase of 1.2%. The year-to-year average increase in 2008 over 2007 was 8.6%. Management believes the growth in loans was directly attributable to the growth in our branch network, community acceptance, and the reputations of our lending team despite a significant downturn in economic conditions in our market area during 2009 and 2008. The following provides an analysis of our loan distribution at the end of 2005 - 2009. Loans that are secured by real estate include residential and nonresidential mortgages and home equity loans to individuals.

- 9 -

Table of Contents

Loan Portfolio (dollars in thousands):

	At December 31,
	2009			%			2008			%			2007			%			2006			%			2005			%
Real estate
Construction, land
development,
and other land	$	32,455			16	%	$	39,135			19	%	$	53,197			25	%	$	51,598			29	%	$	37,905			25	%
1-4 family residential		56,900			28	%		57,814			28	%		45,708			23	%		38,018			22	%		31,997			21	%
Multifamily residential		2,902			1	%		4,481			2	%		1,784			1	%		2,489			1	%		3,051			2	%
Commercial		93,455			47	%		88,762			43	%		86,785			42	%		68,588			39	%		62,612			41	%
Total real estate		185,712			92	%		190,192			92	%		187,474			91	%		160,693			91	%		135,565			89	%
Commercial		11,703			6	%		13,314			6	%		11,485			6	%		11,214			6	%		11,901			8	%
Consumer and other loans		3,315			2	%		3,548			2	%		5,138			3	%		5,828			3	%		5,400			3	%
Total loans		200,730			100	%		207,054			100	%		204,097			100	%		177,735			100	%		152,866			100	%
Less:
Less, deferred fees		(12	)					(25	)					(37	)					(27	)					(63	)
Less, allowance for
loan losses		(6,531	)					(3,999	)					(2,169	)					(1,599	)					(1,552	)

	$	194,187					$	203,030					$	201,891					$	176,109					$	151,251

The following tables show the maturity data for loans receivable.

Contractual Loan Maturities at December 31, 2009 (dollars in thousands):

	1 Year		1 Through		After
	or Less		5 Years		5 Years		Total
Real estate
Construction, land development,
and other land	$	18,734	$	12,256	$	1,465	$	32,455
1-4 family residential		30,616		14,523		11,761		56,900
Multifamily residential		1,349		360		1,193		2,902
Commercial		21,231		42,801		29,423		93,455
Total real estate		71,930		69,940		43,842		185,712
Commercial		4,486		6,021		1,196		11,703
Consumer and other loans		695		2,380		240		3,315

Total loan portfolio	$	77,111	$	78,341	$	45,278	$	200,730

Loans with maturities over one year:
Fixed rate							$	78,478
Variable rate								45,141

Total maturities greater than one year							$	123,619

Loan Maturities or Next Repricing Date at December 31, 2009, excluding nonaccrual loans (dollars in thousands):

Three months or less	$	57,519
Over three months through twelve months		23,128
Over one year through three years		68,955
Over three through five years		28,418
Over five years		15,995

	$	194,015

- 10 -

Table of Contents

Loans Originated and Repaid (dollars in thousands):

	Years Ended December 31,
	2009			2008			2007			2006			2005
Originations:
Real estate loans
Construction, land development, and other land	$	743		$	8,052		$	19,007		$	39,551		$	33,561
1-4 family residential		1,537			14,563			13,262			15,744			12,518
Multifamily residential		-			-			-			-			-
Commercial		4,763			2,946			18,632			17,548			13,180
		7,043			25,561			50,901			72,843			59,259
Commercial		1,846			2,971			2,678			4,452			4,364
Consumer and other loans		1,160			835			2,047			2,807			2,263
Total		10,049			29,367			55,626			80,102			65,886
Principal reductions, net (1)		(16,373	)		(26,410	)		(29,264	)		(55,233	)		(42,895	)

Increase (decrease) in total loans	$	(6,324	)	$	2,957		$	26,362		$	24,869		$	22,991

(1)	Includes charge-offs, loans transferred to other real estate owned, and advances and repayments on revolving lines of credit.

ASSET QUALITY

Generally, interest on loans accrues and is credited to income based upon the principal balance outstanding. Management’s policy is 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. Other real estate owned is 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 loan is transferred to other real estate owned. Further allowances for losses in other real estate owned are recorded at the time management believes additional deterioration in value has occurred. Gains or losses on the sale of other real estate owned are recognized in the period closed. However, gains on the sale of units in a real estate development project may be deferred until management is reasonably certain that its investment in the remaining units will not result in losses. For example, regulatory guidelines require that we value real estate development projects of 5 or more units at its appraised bulk sale value. Since the units may not be identical in size, location, or amenities, any allocation of the total bulk sale value to individual units is arbitrary. Furthermore, if we have taken over a real estate development, we may have ongoing expenditures that benefit sold and remaining units. Accordingly, we may view the real estate development as one project and only record gains when we are assured that no significant losses are inherent in the remaining units.

During the first quarter of 2008, we foreclosed on a 17-unit condominium project in Jacksonville Beach, Florida. At the time of foreclosure, 14 units remained unsold. Subsequent to our acquisition of this OREO, we sold 2 units in the first quarter of 2008 ($69,000 estimated gain), 1 unit in the second quarter of 2008 ($18,000 estimated gain), and 2 units in the fourth quarter of 2008 ($3,000 estimated gain). The estimated potential gains of approximately $90,000 were based on an arbitrary allocation of total carrying value divided by square footage. However, because we were not reasonably certain that our remaining investment would be recovered from sales of the remaining 9 units; no gain was recorded on the sale of the 5 units during 2008. Furthermore, in the fourth quarter of 2008, due to ongoing expenditures in the project and continued deterioration in the local real estate market, we recorded a charge to earnings of $315,000, leaving a carrying value of $2,022,000 at December 31, 2008. This carrying value was based on management’s estimate of the fair value less costs to sell the remaining 9 units. Accordingly, no deferred gain existed at December 31, 2008. We did not believe it prudent to record gains on the sale of the 5 units while posting a write-down on the remaining 9 units within the same calendar year given the uncertainty over the carrying value of this OREO in this economic environment.

- 11 -

Table of Contents

In the first half of 2009, 2 additional units were sold ($97,000 estimated gain), leaving 7 remaining units at December 31, 2009, with a current carrying value of $1,273,000 (net of write-downs totaling $300,000 in December 2009).

Accounting Standards Codification (“ASC”) 310-10-35, Receivables , considers a loan to be impaired if it is probable that all amounts due under the contractual terms of the loan agreement will not be collected. 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:

·	the loan’s market price; or

·	the discounted fair value of the loan’s collateral, less 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.

Situations may occur where:

·	we receive physical possession of a debtor’s assets regardless of whether formal foreclosure proceedings have been initiated or completed; or

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

These situations are referred to as “in-substance foreclosures.” Generally accepted accounting principles (“GAAP”) 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.

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 or require a harsher classification than management has assessed. There are three classifications for problem (or classified) 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. We also monitor other loans based on a variety of factors and internally designate these loans with risk grades reflective of our estimated level of risk.

Management monitors our loan portfolio throughout the month for classification changes. Each quarter, we perform a detailed internal review to determine an appropriate level of reserves to set aside for probable losses in our loan portfolio. We supplement our internal reviews with semiannual external loan review performed by an independent public accounting firm. The regulatory agencies also have the authority to require additional levels of reserves if they deem necessary despite management’s best efforts to establish an appropriate level of reserves consistent with generally accepted accounting principles. Sometimes our collective assessments from internal and loan reviews may differ from the regulatory assessment.

- 12 -

Table of Contents

The following shows the composition of the assets classified by the FDIC in its November 2008 Exam (dollars in thousands):

	Asset Classifications
Assets Classified by FDIC in November 2008 Exam	Substandard		Doubtful		Loss		Total
Commercial real estate	$	19,422	$	-	$	1,110	$	20,532
Residential real estate		1,472		-		-		1,472
Total real estate		20,894		-		1,110		22,004
Commercial		2,584		-		93		2,677
Consumer and other loans		69		-		14		83
Total		23,547		-		1,217		24,764
Other real estate owned		2,967		-		781		3,748
Other foreclosed assets		75		-		-		75
	$	26,589	$	-	$	1,998	$	28,587

Twelve loan relationships accounted for 95% of the classified loans and 2 foreclosed real estate properties accounted for 85% of the other classified assets. The composition of these loan relationships and other real estate owned (each in excess of $500,000) follows (dollars in thousands):

	Classified Loans				OREO
Commercial real estate	$	19,989	85	%	$	2,444	76	%
Residential real estate		880	4	%		790	24	%
Commercial		2,557	11	%		-	0	%
Consumer and other loans		-	0	%		-	0	%
	$	23,426	100	%	$	3,234	100	%

Twelve of the classified loans were on nonaccrual status, which amounted to 30% of the classified loans, and six other loans were past due, or 11% of the classified loans. The issues identified by the FDIC that gave rise to the loan classifications included:

· Weakening economic conditions in Oceanside’s real estate market,

· Inappropriate concentrations of commercial real estate, which was slightly over the regulatory guidelines at the time of the FDIC November 2008 Exam,

· The likelihood of continued asset deterioration,

· Loans with little or no principal reductions (including interest-only loans),

· Loans originated to renovate or develop real estate where the project had stalled because of the significant downturn in Oceanside’s trade area,

· Slow or stalled sales of real estate collateral,

· Marginal or insufficient collateral coverage, and

· Strained borrower and/or guarantor cash flow and liquidity due to the recent downturn in the economy, the falling stock market, and rising unemployment.

Since the identification of classified assets by the FDIC in its November 2008 Exam, we have disposed of approximately 50% of the original balances (see below). Of this net reduction, approximately 51% was related to improved performance and risk-rating of the formerly classified loan and approximately 39% was attributable to charge-offs or write-downs taken on the classified assets. Of the $4.8 million of charge-offs and write-downs, 2 loans accounted for $3.5 million and 1 foreclosed real estate project totaled $1.1 million. The largest OREO classified asset, which started out at $2.4 million, is expected to have all but 1 unit sold by the end of the second quarter of 2010 with no additional losses anticipated.

- 13 -

Table of Contents

Based on our ongoing monitoring of the classified assets identified by the FDIC, we do not anticipate significant additional losses in excess of the specific reserves at March 31, 2010 (dollars in thousands):

	Amount			% of Write- downs/Reserves to Total Remaining Balances
Remaining balances of loans identified by FDIC in November 2008 Exam	$	16,551
Direct write-downs		(3,007	)		18	%
Subtotal		13,544
Specific reserves		(1,275	)		8	%
Net	$	12,269

We are also ahead of the FDIC target of reducing these classified assets to below 100% of Tier 1 capital plus ALLL by reaching 85.1% in less than 90 days from the date of the Consent Order. While we cannot predict whether we will continue to meet these targets, the further reduction in our largest classified OREO project in the second quarter of 2010 should help meet the next target of 85% within 180 days of the Consent Order.

In developing the level of ALLL at each quarter end, we evaluated the substandard loans classified by the FDIC for impairment in the same manner as discussed elsewhere in this filing. Specifically, we obtain updated appraisals or evaluations periodically and assess each quarter any needed reserves as required under ASC 310-10-35. Throughout the quarter, our special assets officer monitors and updates values as needed. Since 7 loan relationships comprise 96% of the remaining classified loan balances of $13.5 million at March 31, 2010, we are able to give substantial attention and consideration of these specific loans in developing our ALLL calculation. Also, because, the balance in these loans classified by the FDIC declined more rapidly than scheduled in the Consent Order, at March 31, 2010, these classified loans represent approximately 42% of the loans evaluated for impairment and the level of specific reserves allocated to these loans of $1.275 million at March 31, 2010, was approximately 19% of the total ALLL.

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.

Management maintains a list of monitored loans risk-rated substandard or lower (referred to as “classified loans”). At December 31, 2009, management had fifty-seven classified loans totaling approximately $30.8 million, as compared with fifty classified loans totaling $28.5 million at December 31, 2008, twenty-eight classified loans totaling $8.0 million at December 31, 2007, and fifteen classified loans totaling $4.5 million at December 31, 2006.

Many of the loans risk-rated substandard are currently performing with no expectation that we will suffer any loss; however, we monitor these loans because some of them are collateral-dependent and the current status of the borrower’s liquidity and cash flow have not been confirmed. Because some of these loans exhibit well-defined credit weaknesses, we may incur losses if the underlying collateral declines in value beyond our expectations or the borrower’s financial condition deteriorates and payments are not made as agreed.

Included in our total classified loans of $30.8 million, we internally monitor classified loans that we believe continue to meet the regulatory definition of performing loans. While we may experience losses, many of these loans are believed to be well-secured and with no measured impairment loss. Such loans totaled $14.8 million at December 31, 2009. On October 30, 2009, the federal regulatory agencies issued a policy statement on prudent CRE loan workouts that may result in a removal of certain CRE loans currently classified as substandard with potential collateral shortfalls but with documented capacity of the borrower to service the current principal and interest payments.

Additional Disclosures - Higher Risk Loans. Certain types of loans, such as option ARM products, junior lien mortgages, high loan-to-value ratio mortgages, interest only loans (which are generally associated with construction

- 14 -

Table of Contents

and development loans), subprime loans, and loans with initial teaser rates, can have a greater risk of non-collection than other loans. We have not engaged in the practice of lending in the subprime market or offering loans with initial teaser rates and option ARM products.

Substantially all our loans are in our trade area and have been affected by economic and real estate trends in North Florida. Our increases in past due loans, nonperforming assets, charge-offs, and allowance for loan losses over historical levels are directly related to declines in real estate activity, collateral values, and other negative economic trends such as rising unemployment. We monitor a number of key ratios to identify risks and focus management efforts to mitigate our exposure. We monitor loans in excess of federal supervisory loan-to-value limits. Such loans totaled $9.2 million and $12.9 at December 31, 2009 and 2008, respectively. Delinquency amounts and delinquency amounts expressed as a percentage of total loans for each loan classification are as follows:

As of December 31, 2009	Past Due 30-89 Days and Still Accruing		% of Total Loans			Past Due 90 or More Days and Still Accruing		% of Total Loans			Non- accrual Loans		% of Total Loans			Total Past Due Loans		% of Total Loans
Real estate:
Construction, land
development and other
land	$	89		0.27	%	$	7		0.02	%	$	2,019		6.22	%	$	2,115		6.51	%
1-4 family residential		724		1.27	%		-		0.00	%		3,133		5.51	%		3,857		6.78	%
Multifamily residential		-		0.00	%		-		0.00	%		1,350		46.52	%		1,350		46.52	%
Commercial		543		0.58	%		-		0.00	%		213		0.23	%		756		0.81	%
Total real estate		1,356		0.73	%		7		0.00	%		6,715		3.62	%		8,078		4.35	%
Commercial		140		1.20	%		-		0.00	%		-		0.00	%		140		1.20	%
Consumer and other loans		58		1.75	%		1		0.00	%		-		0.00	%		59		1.75	%
Total loans	$	1,554		0.77	%	$	8		0.00	%	$	6,715		3.35	%	$	8,277		4.12	%

As of December 31, 2008	Past Due 30-89 Days and Still Accruing		% of Total Loans			Past Due 90 or More Days and Still Accruing		% of Total Loans			Non- accrual Loans		% of Total Loans			Total Past Due Loans		% of Total Loans
Real estate:
Construction, land
development and other
land	$	1,103		2.82	%	$	1,451		3.71	%	$	3,793		9.69	%	$	6,347		16.22	%
1-4 family residential		230		0.40	%		-		0.00	%		1,638		2.83	%		1,868		3.23	%
Multifamily residential		-		0.00	%		-		0.00	%		-		0.00	%		-		0.00	%
Commercial		1,740		1.96	%		205		0.23	%		-		0.00	%		1,945		2.19	%
Total real estate		3,073		1.62	%		1,656		0.87	%		5,431		2.86	%		10,160		5.35	%
Commercial		242		1.82	%		-		0.00	%		-		0.00	%		242		1.82	%
Consumer and other loans		25		0.70	%		-		0.00	%		28		0.79	%		53		1.49	%
Total loans	$	3,340		1.61	%	$	1,656		0.80	%	$	5,459		2.64	%	$	10,455		5.05	%

The following shows the increases (decreases) in delinquent loans at December 31, 2009, as compared with December 31, 2008. While we cannot predict future trends in delinquencies, we have noted improvements in commercial real estate loans and the overall reduction in loans past due 30-89 days will likely improve charge-offs over time.

Increase (Decreases)	Past Due 30-89 Days and Still Accruing			Past Due 90 or More Days and Still Accruing			Non- accrual Loans			Total Past Due Loans
Real estate:
Real estate:
Construction, land
development and other
land	$	(1,014	)	$	(1,444	)	$	(1,774	)	$	(4,232	)
1-4 family residential		494			-			1,495			1,989
Multifamily residential		-			-			1,350			1,350
Commercial		(1,197	)		(205	)		213			(1,189	)
Total real estate		(1,717	)		(1,649	)		1,284			(2,082	)
Commercial		(102	)		-			-			(102	)
Consumer and other loans		33			1			(28	)		6
Total loans	$	(1,786	)	$	(1,648	)	$	1,256		$	(2,178	)

- 15 -

Table of Contents

We have been consistent in our practice of determining our allowance for loan losses with only minor refinements in establishing reserves for our performing loans. We consider the following in establishing reserves on loans other than impaired loans, which are assigned a specific reserve and/or charged-down to estimated fair value less costs to liquidate:

·	Recent historical loss data over the past five quarters is used as a starting point for estimating current losses;

·	We consider various economic and other qualitative factors affecting loan quality including changes in:

the volume (and trends) of delinquent and monitored loans,

lending policies,

underlying collateral values,

concentrations in risk and levels of concentration risks,

quality of internal and external loan reviews, which includes risk-rating our loans according to federal regulatory guidelines,

competition and regulatory factors,

lending staff experience,

business and economic conditions, and

other factors.

In developing loss factors, we consider both internal historical data and external data such as changes in leading economic indicators, consumer price indices, delinquencies, employment data, cap rates, occupancy levels, rental rates, and single-family homes and condominium sales prices and sales activity.

We maintain formal policies that we believe are consistent with federal regulatory guidance for identifying and quantifying risks related to loan quality and other related matters including but not limited to:

·	the frequency of internal and external loan reviews,

·	obtaining appraisals or evaluations for monitored loans,

·	classifying loans from accrual to nonaccrual status (which is typically done when a loan reaches 90 days past due unless well-secured and in process of collection),

·	recognizing loan charge-offs on impaired loans, and

·	exercising judgment in determining the allowance for loan losses consistent with generally accepted accounting principles.

Our methodology for determining the ASC 310-10-35 and ASC 450-20 components of the ALLL tracks our four major loan pools. Our Board of Directors has approved this methodology and we have undergone recent regulatory examinations that have agreed with the use of the four loan pools shown in the accompanying tables. Accordingly, we believe to further refine our methodology (and obtain historical data) would not meaningfully enhance our disclosures and would increase our costs to monitor our ALLL without any significant benefits.

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, 2005-2009, there were no loans qualified as highly leveraged transactions.

Loans restructured and in compliance with modified terms are commonly referred to as “debt restructurings.” A restructuring of debt constitutes a troubled debt restructuring (“TDR”) if a creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor it would not otherwise consider. A summary of nonperforming assets and restructured loans follows.

[Remainder of page left intentionally blank.]

- 16 -

Table of Contents

Analysis of Nonperforming Assets (dollars in thousands):

	December 31,
	2009			2008			2007			2006			2005
Nonaccrual loans
Construction, land development, and other land	$	2,019		$	3,793		$	4,008		$	-		$	-
1-4 family residential		3,133			1,638			1,919			-			-
Multifamily residential		1,350			-			-			-			-
Commercial		213			-			-			-			-
Total real estate		6,715			5,431			5,927			-			-
Commercial		-			-			295			53			202
Consumer and other loans		-			28			-			-			-
Total	$	6,715		$	5,459		$	6,222		$	53		$	202

Loans 90 days or more past due and still on accrual status
Construction, land development, and other land	$	-		$	1,451		$	-		$	-		$	-
1-4 family residential		7			-			-			-			-
Multifamily residential		-			-			-			-			-
Commercial		-			205			164			-			-
Total real estate		7			1,656			164			-			-
Commercial		-			-			-			-			-
Consumer and other loans		1			-			-			-			-
Total	$	8		$	1,656		$	164		$	-		$	-

Total nonperforming loans	$	6,723		$	7,115		$	6,386		$	53		$	202
Foreclosed real estate		1,727			3,421			-			-			-
Repossessed assets		-			75			9			13			-
Total nonperforming assets	$	8,450		$	10,611		$	6,395		$	66		$	202

Restructured loans
1 to 4 family	$	5,968		$	692		$		*	$		*	$		*
All other		11,404			2,874			4,491			*			*
Total restructured loans	$	17,372		$	3,566		$		*	$		*	$		*

Total nonperforming assets
and restructured loans	$	25,822		$	14,177		$	10,886		$	66		$	202

Restructured loans included in nonaccrual loans
above that are considered troubled debt
restructurings	$	1,842		$	4,386		$	782		$	-		$	-

Ratios
Total loans	$	200,718		$	207,029		$	204,060		$	177,708		$	152,803
Total assets	$	297,366		$	267,973		$	261,406		$	243,497		$	213,880
Total nonperforming loans to total loans		3.35	%		3.44	%		3.13	%		0.04	%		0.13	%
Total nonperforming assets to total assets		2.84	%		3.96	%		2.45	%		0.03	%		0.09	%
Total nonperforming assets and
restructured loans to total assets		8.68	%		5.29	%		4.16	%		0.03	%		0.09	%

*	Data not reported in 2006-2007 - not material

- 17 -

Table of Contents

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. The following is an analysis of the allowance for loan losses for 2005 - 2009 (dollars in thousands).

	December 31,
	2009			2008			2007			2006			2005

Allowance for loan losses at beginning of year	$	3,999		$	2,169		$	1,599		$	1,552		$	1,296

Charge-offs for the year-to-date
Construction, land development, and other land		(135	)		(190	)		-			-			-
1-4 family residential		(1,317	)		(679	)		-			-			(36	)
Multifamily residential		(2,040	)		(1,110	)		-			-			-
Commercial		(156	)		-			-			-			-
Total real estate		(3,648	)		(1,979	)		-			-			(36	)
Commercial		(39	)		(501	)		(49	)		(169	)		-
Consumer and other loans		(74	)		(135	)		(26	)		(12	)		(50	)
Total charge-offs		(3,761	)		(2,615	)		(75	)		(181	)		(86	)

Recoveries for the year-to-date
Construction, land development, and other land		-			-			-			-			-
1-4 family residential		1			-			-			-			1
Multifamily residential		-			-			-			-			-
Commercial		-			-			-			-			-
Total real estate		1			-			-			-			1
Commercial		11			19			11			31			-
Consumer and other loans		13			2			5			3			7
Total recoveries		25			21			16			34			8
Net charge-offs for the year-to-date		(3,736	)		(2,594	)		(59	)		(147	)		(78	)
Provision for loan losses for the year-to-date		6,268			4,424			629			194			334
Allowance for loan losses at end of year	$	6,531		$	3,999		$	2,169		$	1,599		$	1,552

Ratios
Total loans	$	200,718		$	207,029		$	204,060		$	177,708		$	152,803
Average loans	$	206,188		$	203,675		$	187,544		$	167,883		$	141,587
Nonperforming loans	$	6,723		$	7,155		$	6,386		$	53		$	201
Total assets	$	297,366		$	267,973		$	261,406		$	243,497		$	213,880
Ratio of net charge-offs to average loans outstanding		1.81	%		1.27	%		0.03	%		0.09	%		0.06	%
Ratio of allowance for loan losses to period end loans		3.25	%		1.93	%		1.06	%		0.90	%		1.02	%
Ratio of allowance for loan losses
to nonperforming loans		97.14	%		55.89	%		33.96	%	NM			NM

NM	Not meaningful

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.

- 18 -

Table of Contents

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

ASC 310-10-35	At December 31,
	2009					2008					2007					2006					2005
			% of					% of					% of					% of					% of
			Loans to					Loans to					Loans to					Loans to					Loans to
			Total					Total					Total					Total					Total
	Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans
Commercial real estate	$	3,547		63	%	$	1,114		62	%	$	124		68	%	$	8		68	%	$	22		66	%
Residential real estate		831		29			140		30			366		23			8		23			112		23
Total real estate		4,378		92			1,254		92			490		91			16		91			134		89
Commercial		-		6			435		6			226		6			119		6			219		8
Consumer and other loans		2		2			28		2			12		3			23		3			37		3
Unallocated		-		-			-		-			-		-			-		-			-		-
Totals	$	4,380		100	%	$	1,717		100	%	$	728		100	%	$	158		100	%	$	390		100	%

ASC 450-20	At December 31,
	2009					2008					2007					2006					2005
			% of					% of					% of					% of					% of
			Loans to					Loans to					Loans to					Loans to					Loans to
			Total					Total					Total					Total					Total
	Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans
Commercial real estate	$	504		63	%	$	993		62	%	$	1,078		67	%	$	971		68	%	$	767		66	%
Residential real estate		1,392		29			819		30			60		24			49		23			267		23
Total real estate		1,896		92			1,812		92			1,138		91			1,020		91			1,034		89
Commercial		194		6			383		6			193		6			242		6			93		8
Consumer and other loans		61		2			87		2			88		3			44		3			35		3
Unallocated		-		-			-		-			22		-			135		-			-		-
Totals	$	2,151		100	%	$	2,282		100	%	$	1,441		100	%	$	1,441		100	%	$	1,162		100	%

Total ALLL	At December 31,
	2009					2008					2007					2006					2005
			% of					% of					% of					% of					% of
			Loans to					Loans to					Loans to					Loans to					Loans to
			Total					Total					Total					Total					Total
	Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans			Amount		Loans
Commercial real estate	$	4,051		63	%	$	2,107		62	%	$	1,202		67	%	$	979		68	%	$	789		66	%
Residential real estate		2,223		29			959		30			426		24			57		23			379		23
Total real estate		6,274		92			3,066		92			1,628		91			1,036		91			1,168		89
Commercial		194		6			818		6			419		6			361		6			312		8
Consumer and other loans		63		2			115		2			100		3			67		3			72		3
Unallocated		-		-			-		-			22		-			135		-			-		-
Totals	$	6,531		100	%	$	3,999		100	%	$	2,169		100	%	$	1,599		100	%	$	1,552		100	%

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. Our investment securities consist of residential real estate mortgage investment conduits (“REMICs”) and residential mortgage pass-through securities (“MBS”) all of which are issued or guaranteed by U.S. Capital Government agencies such as FNMA, FHLMC, and GNMA. The following tables set forth the carrying amount of securities at the dates indicated.

- 19 -

Table of Contents

Carrying Value of Investment Securities (dollars in thousands):

	At December 31,
	2009		2008		2007
Securities available-for-sale:
REMICs	$	137	$	2,699	$	3,019
MBS		42,405		12,171		22,519
		42,542		14,870		25,538
Securities held-to-maturity:
Tax-exempt state, county, and municipal bonds		14,989		15,536		15,762
Balance, end of year	$	57,531	$	30,406	$	41,300

Investment Securities at Amortized Cost (dollars in thousands):

	At December 31,
	2009		2008		2007
Securities available-for-sale:
REMICs	$	134	$	2,700	$	2,983
MBS		42,428		12,171		22,691
		42,562		14,871		25,674
Securities held-to-maturity:
Tax-exempt state, county, and municipal bonds		14,989		15,536		15,762
Balance, end of year	$	57,551	$	30,407	$	41,436

The following tables set forth the maturities (excluding principal paydowns on MBS) and the weighted average yields of securities by contractual maturities at December 31, 2009, 2008, and 2007.

Analysis of Investment Securities Available-for-Sale (dollars in thousands and average yield on a tax-equivalent basis):

	Due in one					Due in One					Due in Five					Due in Ten
	year or less					to Five Years					to Ten Years					Years or More					Total
			Average					Average					Average					Average					Average
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
At December 31, 2009 :
REMICs	$	-		-	%	$	137		3.67	%	$	-		-	%	$	-		-	%	$	137		3.67	%
MBS		3,104		2.94	%		4,949		4.36	%		20,595		3.83	%		13,757		3.92	%		42,405		3.85	%
	$	3,104		2.94	%	$	5,086		4.34	%	$	20,595		3.83	%	$	13,757		3.92	%	$	42,542		3.85	%
At December 31, 2008 :
REMICs	$	-		-	%	$	-		-	%	$	2,123		4.01	%	$	576		4.26	%	$	2,699		4.06	%
MBS		639		3.77	%		1,075		3.79	%		973		4.93	%		9,484		4.37	%		12,171		4.33	%
	$	639		3.77	%	$	1,075		3.79	%	$	3,096		4.93	%	$	10,060		4.37	%	$	14,870		4.42	%
At December 31, 2007 :
REMICs	$	-		-	%	$	-		-	%	$	-		-	%	$	3,019		5.64	%	$	3,019		5.64	%
MBS		2,803		4.08	%		2,356		3.85	%		10,594		4.53	%		6,766		4.90	%		22,519		4.52	%
	$	2,803		4.08	%	$	2,356		3.85	%	$	10,594		4.53	%	$	9,785		4.90	%	$	25,538		4.56	%

Analysis of Investment Securities Held-to-Maturity (dollars in thousands and average yield on a tax-equivalent basis):

	Due in one					Due in One					Due in Five					Due in Ten
	year or less					to Five Years					to Ten Years					Years or More					Total
			Average					Average					Average					Average					Average
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
At December 31, 2009 :
Tax-exempt state, county,
and municipal bonds	$	-		-	%	$	271		4.70	%	$	1,163		4.84	%	$	13,555		4.22	%	$	14,989		4.28	%

At December 31, 2008 :
Tax-exempt state, county,
and municipal bonds	$	-		-	%	$	-		-	%	$	1,010		4.86	%	$	14,526		4.27	%	$	15,536		4.31	%

At December 31, 2007 :
Tax-exempt state, county,
and municipal bonds	$	-		-	%	$	-		-	%	$	1,057		4.77	%	$	14,705		3.97	%	$	15,762		4.02	%

- 20 -

Table of Contents

At December 31, the weighted average life in years was as follows:

	2009		2008		2007
Securities available-for-sale:
REMICs		1.7		2.6		14.0
MBS		9.6		21.0		9.5
Total		9.6		17.7		14.1
Securities held-to-maturity:
Tax-exempt state, county, and municipal bonds		17.0		18.4		17.6

DEPOSITS

Deposits are the major source of our funds for lending and other investment purposes. Deposits are attracted principally from within our assessment area 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 that 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 and 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, 2008, Oceanside met the definition of a “well-capitalized” depository institution. However, as of December 31, 2009, Oceanside no longer met the “well-capitalized” classification, and under the Consent Order is restricted on rates and types of deposits we can accept, renew, or rollover. For this reason, we have increased our liquid assets to repay certain deposits as they mature.

Our primary source of funds is deposit accounts that include both interest- and noninterest-bearing demand, savings, and time deposits under $100,000 (referred to as “core deposits”). At December 31, 2009, 2008, and 2007, these core deposits accounted for approximately 83%, 78%, and 73%, respectively, of all deposits. At December 31, 2009, time deposits under $100,000 accounted for approximately 37% of these core deposits as compared with money market deposits at 41% and noninterest-bearing demand deposits at 16%. This compares with 2008 levels of 50%, 15%, and 23%, respectively, and with 2007 levels of 55%, 23%, and 17%, respectively. At December 31, 2009, 2008, and 2007, jumbo certificates of deposit (time deposits $100,000 and greater) represented approximately 17%, 22%, and 27%, respectively, of total deposits. At December 31, 2009, 2008, and 2007, time deposits outstanding in an individual amount of $100,000 or more totaled $46,665,000, $51,771,000, and $57,785,000, respectively.

Interest-bearing demand accounts, consisting of NOW and money market accounts, averaged $88,744,000 for the year ended 2009, $42,108,000 for the year ended 2008, and $42,858,000 for the year ended 2007, or approximately 34%, 19%, and 21% of average total deposits in 2009, 2008, and 2007, respectively.

- 21 -

Table of Contents

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

	At December 31,
	2009						2008						2007
				% of						% of						% of
	Amount			Deposits			Amount			Deposits			Amount			Deposits

Demand deposits	$	35,409			13.1	%	$	43,017			17.9	%	$	27,278			12.5	%
NOW deposits		11,455			4.2			20,208			8.4			4,440			2.1
Money market deposits		90,573			33.6			27,981			11.7			36,835			16.9
Savings deposits		2,702			1.0			2,892			1.2			2,800			1.3
Subtotal		140,139			51.9			94,098			39.2			71,353			32.8

Certificates of deposit:
0.00% - 0.99%		236			0.1			-			0.0			-			0.0
1.00% - 1.99%		27,485			10.2			-			0.0			-			0.0
2.00% - 2.99%		60,956			22.6			6,250			2.6			-			0.0
3.00% - 3.99%		21,895			8.1			69,932			29.2			950			0.4
4.00% - 4.99%		8,887			3.3			42,947			17.9			40,953			18.8
5.00% - 5.99%		10,428			3.8			26,669			11.1			104,275			48.0
Less fees on brokered deposits		(42	)		0.0			(52	)		0.0			(40	)		0.0
Total certificates of deposit (1)		129,845			48.1			145,746			60.8			146,138			67.2

Total deposits	$	269,984			100.0	%	$	239,844			100.0	%	$	217,491			100.0	%

(1)	Includes retirement accounts (in thousands) totaling $4,924, $4,047, and $5,281, in 2009, 2008, and 2007, respectively, all of which were in the form of certificates of deposit.

Average Deposits and Average Rates (dollars in thousands):

	At December 31,
	2009					2008					2007
	Average		Average			Average		Average			Average		Average
	Balance		Rate			Balance		Rate			Balance		Rate
Demand, money market
and NOW deposits	$	123,182		1.24	%	$	69,612		1.43	%	$	72,193		2.33	%
Savings deposits		2,858		0.99			2,988		1.10			3,751		1.49
Certificates of deposit		138,791		3.39			146,595		4.60			129,313		5.20
Total deposits	$	264,831		2.37	%	$	219,195		3.54	%	$	205,257		4.12	%

Time Deposits of $100,000 or more with remaining maturities of (dollars in thousands):

	December 31,
	2009		2008		2007

Due in three months or less	$	12,167	$	21,648	$	20,720
Over three through twelve months		27,274		21,122		22,686
Over twelve months through three years		5,871		8,501		11,561
Over three years		1,353		500		2,818
	$	46,665	$	51,771	$	57,785

- 22 -

Table of Contents

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

	Year Ending December 31,
	2010			2011			2012		2013			2014	+	Total
At December 31, 2009:
0.00% - 0.99	$	236		$	-		$	-	$	-	$	-		$	236
1.00% - 1.99		26,860			625			-		-		-			27,485
2.00% - 2.99		43,385			11,425			5,068		-		1,078			60,956
3.00% - 3.99		20,934			629			5		230		97			21,895
4.00% - 4.99		7,770			768			60		289		-			8,887
5.00% - 5.99		6,229			3,796			403		-		-			10,428
Less fees on brokered deposits		(42	)		-			-		-		-			(42	)
Total certificates of deposit	$	105,372		$	17,243		$	5,536	$	519	$	1,175		$	129,845

	Year Ending December 31,
		2009			2010			2011		2012		2013	+	Total
At December 31, 2008:
1.00% - 1.99	$	-		$	-		$	-	$	-	$	-		$	-
2.00% - 2.99		6,036			213			1		-		-			6,250
3.00% - 3.99		51,461			17,772			476		-		223			69,932
4.00% - 4.99		34,078			7,765			761		57		286			42,947
5.00% - 5.99		16,316			6,192			3,749		412		-			26,669
Less fees on brokered deposits		(52	)		-			-		-		-			(52	)
Total certificates of deposit	$	107,839		$	31,942		$	4,987	$	469	$	509		$	145,746

	Year Ending December 31,
		2008			2009			2010		2011		2012	+	Total
At December 31, 2007:
1.00% - 1.99	$	-		$	-		$	-	$	-	$	-		$	-
2.00% - 2.99		-			-			-		-		-			-
3.00% - 3.99		446			504			-		-		-			950
4.00% - 4.99		30,952			8,762			1,172		11		56			40,953
5.00% - 5.99		77,138			15,690			6,662		4,377		408			104,275
Less fees on brokered deposits		(23	)		(17	)		-		-		-			(40	)
Total certificates of deposit	$	108,513		$	24,939		$	7,834	$	4,388	$	464		$	146,138

SHORT-TERM AND LONG-TERM DEBT

Other Borrowings (dollars in thousands):

	December 31,
	2009		2008		2007

Customer repurchase agreements	$	-	$	-	$	13,816
Federal funds purchased		-		-		4,372
FHLB of Atlanta advances		12,300		6,300		2,300
Junior subordinated debentures		3,093		3,093		3,093

	$	15,393	$	9,393	$	23,581

Customer Repurchase Agreements . Oceanside has sold securities under an agreement to repurchase, which effectively collateralizes overnight borrowings. At December 31, 2009, no borrowings were outstanding and no securities were sold under agreements to repurchase.

FHLB of Atlanta Advances. Oceanside has obtained advances from FHLB totaling $12,300,000 collateralized by Oceanside’s FHLB capital stock in the amount of $1,126,000 and a blanket lien on eligible qualifying real estate mortgage loans totaling approximately $43.3 million. $4.3 million of the advances mature in 2010, and $8.0 million mature in 2012. The advances have fixed interest rates ranging from 1.91% to 4.45%.

Junior Subordinated Debentures. On September 15, 2005, Atlantic issued $3,093,000 of fixed-rate junior subordinated debentures (the “debt securities”) to Atlantic BancGroup Statutory Trust I, a statutory trust created

- 23 -

Table of Contents

under the laws of the State of Delaware. These debt securities are subordinated to effectively all borrowings of Atlantic and are due and payable in thirty years.

Other Short-term Borrowings . Oceanside purchases federal funds for liquidity needs during the year. At December 31, 2009, 2008, and 2007, federal fund purchases were $-0-, $-0-, and $4,372,000, respectively.

Selected Data for Other Borrowings (dollars in thousands):

	2009			2008			2007
Interest rate at end of period
Customer repurchase agreements (federal funds rate less
25 basis points)		-	%		-	%		4.000	%
FHLB of Atlanta advances (fixed rate convertible debt)		4.450	%		4.450	%		4.450	%
FHLB of Atlanta advances (fixed rate fixed debt)		1.910	%		1.990	%		-	%
FHLB of Atlanta advances (fixed rate fixed debt)		2.300	%		-	%		-	%
Junior subordinated debentures (fixed rate for five years)		5.886	%		5.886	%		5.886	%
Other short-term borrowings (federal funds purchased)		-	%		-	%		4.600	%

Average balances during the period
Customer repurchase agreements	$	-		$	10,960		$	15,054
FHLB of Atlanta advances	$	12,738		$	4,545		$	2,300
Junior subordinated debentures	$	3,093		$	3,093		$	3,093
Other short-term borrowings (federal funds purchased)	$	2		$	2,445		$	2,441

Weighted average interest rate
Customer repurchase agreements		-	%		1.88	%		4.81	%
FHLB of Atlanta advances		2.74	%		3.30	%		4.45	%
Junior subordinated debentures		5.89	%		5.89	%		5.89	%
Other short-term borrowings (federal funds purchased)		-	%		3.27	%		4.64	%

Short-term borrowings (customer repurchase agreements
and federal funds purchased)
Balance at end of period	$	-		$	-		$	18,188
Weighted average interest rate at end of period		-	%		-	%		4.00	%
Maximum amount outstanding at month end during the period	$	200		$	22,159		$	26,184
Average amount outstanding during the period	$	2		$	13,405		$	17,495
Weighted average interest rate during the period		-	%		2.13	%		4.78	%

Interest Expense for Other Borrowings (dollars in thousands):

	December 31,
	2009		2008		2007
Customer repurchase agreements	$	-	$	206	$	724
FHLB of Atlanta advances		349		149		104
Junior subordinated debentures		183		185		185
Other short-term borrowings (federal funds purchased)		-		80		113

	$	532	$	620	$	1,126

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 interest-earning assets. Our principal sources of asset liquidity are federal funds sold and the securities portfolio, including principal paydowns from Residential mortgage pass-through securities. In 2009, 2008, and 2007, principal paydowns from Residential mortgage pass-through securities totaled $6,778,000, $7,163,000, and $6,601,000, respectively.

- 24 -

Table of Contents

Other sources of funds are principal paydowns and maturities in the loan portfolio. The contractual loan maturity table herein illustrates the maturities of loans receivable at December 31, 2009.

We also have sources of liability liquidity that include core deposits as previously discussed and access to borrowed funds including overnight federal funds and customer repurchase agreements. At December 31, 2009, we had approximately $10.0 million available from these sources. As mentioned elsewhere, increased competition for all funding sources has reduced our liquidity.

At December 31, 2009, 2008, and 2007, our liquidity ratio of liquid assets to transaction deposit accounts was 25.2%, 20.5%, and 10.9%, respectively. Management believes that our liquidity is sufficient to meet our anticipated needs. At December 31, 2009, brokered deposits totaled $19,098,000, which represented 7.1% of total deposits.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

Contractual Commitments (dollars in thousands)

	December 31,
	2009		2008		2007
Commitments to originate loans
Residential real estate	$	3,630	$	4,983	$	8,796
Commercial real estate, construction, and land
development secured by real estate		1,186		2,186		12,099
Other unused commitments		4,548		3,311		7,462
Total commitments to originate loans		9,364		10,480		28,357
Financial standby letters of credit		1,174		1,701		2,084

Total contractual commitments	$	10,538	$	12,181	$	30,441

Contractual Obligations (dollars in thousands)

	1 Year		Years 2		Years 4		After
	or Less		and 3		and 5		5 Years		Total

Deposits without a stated maturity	$	140,139	$	-	$	-	$	-	$	140,139
Certificates of deposit and
other time deposits		105,372		22,779		1,694		-		129,845
Federal Home Loan Bank advances		4,300		8,000		-		-		12,300
Junior subordinated debentures		-		-		-		3,093		3,093
Operating leases		332		252		182		862		1,628

Total contractual obligations	$	250,143	$	31,031	$	1,876	$	3,955	$	287,005

Management believes that we have adequate resources to fund all our commitments and contractual obligations. 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 (subject to Consent Order restrictions). Other alternative funding sources include additional overnight purchases of federal funds and customer repurchase agreements, if necessary. We also maintain investments that could be liquidated if needed.

CAPITAL RESOURCES

Historically, we have placed 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.

- 25 -

Table of Contents

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 1 and total risk-based capital. Tier 1 capital is composed of total stockholders’ equity reduced by goodwill, other intangible assets, and certain limitations on the levels of ALLL and deferred tax assets. Total risk-based capital includes Tier 1 capital plus the allowable portion of the allowance for loan losses and any qualifying debt obligations. Regulators also have adopted minimum requirements of 4% of Tier 1 capital and 8% of risk-adjusted assets in total capital. However, under the Consent Order we must maintain a ratio of 11% of risk-adjusted assets to total capital.

We are also subject to leverage capital requirements. This requirement compares capital (using the definition of Tier 1 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. However, under the Consent Order, we must maintain an 8% Tier 1 leverage ratio. Our actual capital amounts, capital ratios, and leverage ratios at December 31, 2009, 2008, and 2007 (Bank Only), are reflected in the table below.

Capital Ratios (dollars in thousands):

	Bank Only
	At December 31,
	2009			2008			2007
Tier 1 capital
Stockholder’s equity	$	12,797		$	19,899		$	21,831
Plus, qualifying trust preferred securities		-			-			-
Plus, unrealized losses on AFS securities		13			1			84
Less disallowed deferred taxes for risk-based capital only		-			(845	)		-
Less intangible assets		-			-			-
		12,810			19,055			21,915
Tier 2 capital
Allowable portion of allowance for loan losses and
off-balance sheet commitments		2,551			2,665			2,200

Total risk-based capital	$	15,361		$	21,720		$	24,115

Total risk-weighted assets	$	200,062		$	211,883		$	234,940

Tier 1 risk-based capital ratio		6.40	%		8.99	%		9.33	%

Total risk-based capital ratio		7.68	%		10.25	%		10.26	%

Average total assets for leverage capital purposes	$	315,347		$	262,982		$	257,067

Tier 1 leverage ratio		4.06	%		7.25	%		8.53	%

Accordingly, at December 31, 2009, we did not meet the capital ratios required in the Consent Order of total risk-based capital of 11% and Tier 1 leverage ratio of 8%.

Trust Preferred Securities. On September 15, 2005, Atlantic entered into a transaction commonly referred to as trust preferred securities. Subject to percentage limitations, the proceeds from the issuance of trust preferred securities are considered Tier 1 capital for regulatory purposes, which totaled $3.0 million (net of Atlantic’s investment in the unconsolidated subsidiary). However, as a result of the issuance of FIN 46 and FIN 46R, the trust subsidiary is not consolidated in these financial statements, and therefore the proceeds received by Atlantic from the trust subsidiary is reported as junior subordinated debentures. In 2005, the Federal Reserve Board ruled that, notwithstanding the deconsolidation of such trusts, junior subordinated debentures, such as those issued by Atlantic, may continue to constitute up to 25% of a bank holding company's Tier 1 capital . During the second quarter of 2009, Atlantic discontinued paying the interest on the junior subordinated debentures and owed $109,000 at December 31, 2009.

- 26 -

Table of Contents

Capital Analysis:

	For the Year Ended December 31,
	2009			2008			2007
Average equity as a percentage of average assets		5.31	%		7.14	%		7.30	%
Equity to total assets at end of year		3.26			6.32			7.21
Return on average equity		-45.70			-10.37			7.77
Return on average assets		-2.43			-0.74			0.57
Noninterest expenses to average assets		2.85			2.94			2.59

Stockholders’ equity is adjusted for the effect of unrealized appreciation or depreciation, net of tax, on securities classified as available-for-sale. Stockholders’ equity decreased $7,252,000 and $1,924,000 in 2009 and 2008, respectively, and increased $1,605,000 in 2007, as follows (dollars in thousands):

	2009			2008			2007

Net income (loss)	$	(7,240	)	$	(1,927	)	$	1,406
Change in unrealized gains (losses) on
available-for-sale securities		(12	)		83			199
Implementation of EITF 06-4 for
indexed retirement plan		-			(80	)		-
	$	(7,252	)	$	(1,924	)	$	1,605

Return on average equity		-45.70	%		-10.37	%		7.77	%

The decrease in return on average equity in 2009 and 2008 is the result of lower earnings for each year due to a decrease in net interest income resulting from increased competition for deposits and lower yields on interest-earning assets and the increased allowances for loan losses to reflect higher nonperforming loans and lower collateral values particularly in the real estate market in which we operate. For 2009, earnings were further depressed by the establishment of a deferred tax asset valuation allowance totaling $2.8 million.

RELATED PARTY TRANSACTIONS

We have entered into transactions with our 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. The following table summarizes the significant end of period insider transactions (dollars in millions):

	2009		2008		2007
Loans	$	7.9	$	6.6	$	6.2
Unfunded loan commitments	$	0.2	$	0.6	$	1.9
Deposits and customer repurchase agreements	$	1.7	$	10.1	$	24.2

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.

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.

- 27 -

Table of Contents

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 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.

Interest Rate Sensitivity at December 31, 2009 (dollars in thousands):

	Under			3 to 12						Over
	3 Months			Months			1 - 5 Years			5 Years			Total

Federal funds sold	$	-		$	-		$	-		$	-		$	-
Interest-bearing deposits		27,535			-			-			-			27,535
Loans (1)		57,519			23,128			97,373			15,995			194,015
Securities (2)		4,119			32			2,541			50,839			57,531

Total rate-sensitive assets	$	89,173		$	23,160		$	99,914		$	66,834		$	279,081

Money market and NOW accounts (2)	$	90,573		$	-		$	-		$	11,455		$	102,028
Savings accounts (2)		-			-			-			2,702			2,702
Certificates of deposit (2)		35,917			69,455			24,473			-			129,845

Total rate-sensitive liabilities	$	126,490		$	69,455		$	24,473		$	14,157		$	234,575

Gap (repricing differences)	$	(37,317	)	$	(46,295	)	$	75,441		$	52,677		$	44,506

Cumulative Gap	$	(37,317	)	$	(83,612	)	$	(8,171	)	$	44,506

Cumulative Gap/total assets		- 12.55	%		- 28.12	%		- 2.75	%		14.971	%

Total assets	$	297,366

(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 of $6,715 were excluded (dollars in thousands).

(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 Years” category. All other time deposits were scheduled through the maturity or repricing dates. Investments were scheduled through their contractual, repricing, or expected principal payment dates. Certain mortgage-backed investments with varying maturities of three years or less were included in the “1-5 Years” category.

RECENT ACCOUNTING PRONOUNCEMENTS IMPACTING FUTURE PERIODS

There are currently no pronouncements issued or that are scheduled for implementation during 2010 that are expected to have any significant impact on our accounting policies. For a discussion of recent accounting pronouncements, see the accompanying Notes to Consolidated Financial Statements shown in Item 8.

- 28 -

Table of Contents

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.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Oceanside’s earnings are dependent, to a large degree, on its net interest income, which is the difference between interest income earned on all interest-earning assets, primarily loans and securities, and interest paid on all interest-bearing liabilities, primarily deposits. Market risk is the risk of loss from adverse changes in market prices and interest rates. Oceanside’s market risk arises primarily from inherent interest rate risk in its lending, investing, and deposit gathering activities. Oceanside seeks to reduce its exposure to market risk through actively monitoring and managing its interest rate risk. Management relies upon static “gap” analysis to determine the degree of mismatch in the maturity and repricing distribution of interest-earning assets and interest-bearing liabilities which quantifies, to a large extent, the degree of market risk inherent in Oceanside’s balance sheet. Gap analysis is further augmented by simulation analysis to evaluate the impact of varying levels of prevailing interest rates and the sensitivity of specific interest-earning assets and interest-bearing liabilities to changes in those prevailing rates. Simulation analysis consists of evaluating the impact on net interest income given changes from 100 - 400 basis points below the current prevailing rates to 100 - 400 basis points above the current prevailing rates. Management makes certain assumptions as to the effect varying levels of interest rates have on certain interest-earning assets and interest-bearing liabilities, which consider both historical experience and consensus estimates of outside sources.

With respect to the primary interest-earning assets, loans and securities, certain features of individual types of loans and specific securities introduce uncertainty as to their expected performance at varying levels of interest rates. In some cases, prepayment options exist whereby the borrower may elect to repay the obligation at any time prior to maturity. These prepayment options make anticipating the performance of those instruments difficult given changes in prevailing interest rates. Management believes that assumptions used in its simulation analysis about the performance of financial instruments with such prepayment options are appropriate. However, the actual performance of these financial instruments may differ from management’s estimates due to several factors, including the diversity and financial sophistication of the customer base, the general level of prevailing interest rates and the relationship to their historical levels, and general economic conditions. The difference between those assumptions and actual results, if significant, could cause the actual results to differ from those indicated by the simulation analysis.

Deposits are the primary funding source for interest-earning assets and the associated market risk is considered by management in its simulation analysis. Generally, it is anticipated that deposits will be sufficient to support funding requirements. However, the rates paid for deposits at varying levels of prevailing interest rates have a significant impact on net interest income.

The following table illustrates the results of the latest simulation analysis used by Oceanside to determine the extent to which market risk would affect net interest margin for the next twelve and twenty-four months if prevailing interest rates increased or decreased the specified amounts from current prevailing rates. As noted above, this model uses estimates and assumptions in both balance sheet growth and asset and liability account rate reactions to changes in prevailing interest rates. Because of the inherent risk of using these estimates and assumptions in the simulation model used to derive this market risk information, the actual results of the future impact of market risk on Oceanside’s net interest margin may differ from that found in the table.

- 29 -

Table of Contents

Change in Prevailing Interest Rates	Change in Net Interest Margin (Basis Points)
	Next 12 months		Next 24 months

+ 400 basis points		-60		-63
+ 300 basis points		-44		-47
+ 200 basis points		-30		-32
+ 100 basis points		-12		-11
Prevailing rates		-		-
- 100 basis points		+10		+7
- 200 basis points		+12		+0
- 300 basis points		+12		-12
- 400 basis points		+7		-27

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 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.

- 30 -

Table of Contents

ITEM 8.

FINANCIAL STATEMENTS and SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Atlantic BancGroup, Inc.

and Subsidiaries

Jacksonville Beach, Florida

We have audited the consolidated balance sheets of Atlantic BancGroup, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations and comprehensive loss, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Atlantic BancGroup, Inc. and Subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered significant losses from operations and capital has been significantly depleted due to the economic downturn. This raises substantial doubt about the Company’s ability to continue as a going concern. Management plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ MAULDIN & JENKINS, LLC

Albany, Georgia

April 15, 2010

- 31 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2009			2008
	(Dollars in Thousands, Except Per Share Data)
ASSETS
Cash and due from banks	$	3,548		$	16,923
Interest-bearing deposits		27,535			154
Federal funds sold		-			100
Total cash and cash equivalents		31,083			17,177

Investment securities, available-for-sale		42,542			14,870
Investment securities, held-to-maturity (market value of $14,748 in 2009
and $14,898 in 2008)		14,989			15,536
Restricted stock, at cost		1,151			955
Loans, net		194,187			203,030
Bank premises and equipment		3,366			3,583
Other real estate owned		1,727			3,421
Accrued interest receivable		1,089			1,051
Deferred income taxes		708			2,003
Investment in unconsolidated subsidiary		93			93
Cash surrender value of bank-owned life insurance		5,097			4,886
Other assets		1,334			1,368

Total assets	$	297,366		$	267,973

LIABILITIES
Deposits:
Noninterest-bearing	$	35,409		$	43,017
Interest-bearing		234,575			196,827
Total deposits		269,984			239,844

Other borrowings:
Long-term debt		15,393			9,393
Total other borrowings		15,393			9,393
Accrued interest payable		299			321
Other liabilities		2,010			1,483
Total liabilities		287,686			251,041

Commitments and contingencies		-			-

STOCKHOLDERS’ EQUITY
Preferred stock, authorized 2,000,000 shares, none issued and outstanding		-			-
Common stock, $0.01 par value, authorized 10,000,000 shares, issued
and outstanding 1,247,516 shares in 2009 and 2008		12			12
Additional paid-in capital		11,788			11,788
Retained earnings (deficit)		(2,107	)		5,133
Accumulated other comprehensive loss:
Net unrealized holding losses on securities		(13	)		(1	)
Total stockholders’ equity		9,680			16,932

Total liabilities and stockholders’ equity	$	297,366		$	267,973

Book value per common share	$	7.76		$	13.57

Common shares outstanding		1,247,516			1,247,516

See accompanying notes to consolidated financial statements.

- 32 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

	Year ended December 31,
	2009			2008
	(Dollars in Thousands, Except Per Share Data)
INTEREST INCOME
Interest and fees on loans	$	12,354		$	13,637
Taxable interest income on investment securities and
interest bearing deposits in banks		875			989
Tax-exempt interest income on investment securities		665			674
Interest on federal funds sold		1			35
Total interest income		13,895			15,335

INTEREST EXPENSE
Interest on deposits		6,268			7,770
Short-term borrowings		-			286
Long-term borrowings		532			334
Total interest expense		6,800			8,390

NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES		7,095			6,945

PROVISION FOR LOAN LOSSES		6,268			4,424

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		827			2,521

NONINTEREST INCOME
Fees and service charges on deposit accounts		611			688
Other fee income for banking services		146			162
Mortgage banking fees		-			17
Income from bank-owned life insurance		229			221
Dividends on restricted stock and trust-preferred securities		7			37
Gain (loss) on sale of foreclosed assets		(142	)		4
Realized gain on securities		56			346
Loss on restricted stock		(179	)		-
Other income		23			34
Total noninterest income		751			1,509

NONINTEREST EXPENSES
Salaries and employee benefits		2,846			3,128
Expenses of bank premises and fixed assets		1,029			1,092
Other operating expenses		4,616			3,429
Total noninterest expenses		8,491			7,649

LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES		(6,913	)		(3,619	)

PROVISION (BENEFIT) FOR INCOME TAXES		327			(1,692	)

NET LOSS		(7,240	)		(1,927	)

OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized holding gains (losses) on securities arising during period, net of
income tax benefit (expense) of $7 in 2009 and $(51) in 2008 ( see Note 3 )		(12	)		83

COMPREHENSIVE LOSS	$	(7,252	)	$	(1,844	)


AVERAGE COMMON SHARES OUTSTANDING
Basic and fully diluted		1,247,516			1,247,516

LOSS PER SHARE
Basic and fully diluted	$	(5.80	)	$	(1.54	)

See accompanying notes to consolidated financial statements.

- 33 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

										Accumulated
					Additional		Retained			Other			Total
	Common Stock				Paid-in		Earnings			Comprehensive			Stockholders’
	Shares		Amount		Capital		(Deficit)			Loss			Equity
	(Dollars in Thousands)

Balance, December 31, 2007		1,247,516	$	12	$	11,788	$	7,140		$	(84	)	$	18,856

Cumulative effect adjustment recorded
as of January 1, 2008, for
implementation of EITF 06-4
( See Notes 1 and 9 )		-		-		-		(80	)		-			(80	)

Comprehensive income (loss):
Net loss		-		-		-		(1,927	)
Change in net unrealized
holding gains on securities		-		-		-		-			83

Total comprehensive loss		-		-		-		-			-			(1,844	)

Balance, December 31, 2008		1,247,516		12		11,788		5,133			(1	)		16,932

Comprehensive income (loss):
Net loss		-		-		-		(7,240	)
Change in net unrealized
holding losses on securities		-		-		-		-			(12	)

Total comprehensive loss		-		-		-		-			-			(7,252	)

Balance, December 31, 2009		1,247,516	$	12	$	11,788	$	(2,107	)	$	(13	)	$	9,680

See accompanying notes to consolidated financial statements.

- 34 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2009			2008
	(Dollars in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(7,240	)	$	(1,927	)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for loan losses		6,268			4,424
Depreciation and amortization		252			313
Net premium amortization and discount accretion		385			(24	)
Gain on sale of investment securities		(56	)		(346	)
(Gain) loss on sale of foreclosed assets		142			(4	)
Deferred income taxes		1,295			(1,007	)
Policy income from bank-owned life insurance		(211	)		(206	)
Pension expense from director and management benefit plans		275			295
Write-down of other real estate owned		586			315
Loss on restricted stock		179			-
Decrease in accrued interest receivable and other assets		225			526
Increase (decrease) in accrued interest payable and other liabilities		230			(99	)
Net cash provided by operating activities		2,330			2,260

CASH FLOWS FROM INVESTING ACTIVITIES
Securities available-for-sale:
Purchases		(43,567	)		(9,346	)
Proceeds from sales		8,383			12,751
Calls and maturities		389			610
Principal repayments on mortgage-backed investment securities		6,778			7,163
Securities held-to-maturity:
Calls		544			220
Purchases of restricted stock		(375	)		(209	)
Increase in loans		1,840			(11,282	)
Proceeds from sale of other real estate owned		1,479			2,302
Purchases of bank premises and equipment		(35	)		(113	)
Net cash provided by (used in) investing activities		(24,564	)		2,096

CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in deposits:
Noninterest-bearing		(7,608	)		15,739
Interest-bearing		37,748			6,614
Proceeds from other borrowings, net of repayments		6,000			(14,188	)
Net cash provided by financing activities		36,140			8,165

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		13,906			12,521

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		17,177			4,656

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	31,083		$	17,177


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash received during the year for interest and dividends	$	13,864		$	15,859
Cash paid during the year for interest	$	6,822		$	8,453
Cash paid (received) during the year for income taxes	$	(693	)	$	46

NONCASH TRANSACTIONS
Loans transferred to foreclosed real estate during the year	$	513		$	5,719
Increase in cash surrender value of bank-owned life insurance	$	229		$	220
Increase in deferred compensation arrangements	$	275		$	295
Net change in unrealized holding gains (losses) on securities
available-for-sale, net of income taxes	$	(12	)	$	83

See accompanying notes to consolidated financial statements.

- 35 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

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 Florida 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.” In 2008, Oceanside formed and began operating a subsidiary, S. Pt. Properties, Inc., for the sole purpose of managing a single real estate property acquired through foreclosure. In 2009, Oceanside formed and began operating two subsidiaries, Parman Place, Inc. and East Arlington, Inc., for the sole purpose of each managing a single real estate property acquired through foreclosure.

Regulatory Action - Effective January 7, 2010, Oceanside entered into a Stipulation to the Issuance of a Consent Order (“Stipulation”) with the Federal Deposit Insurance Corporation (the “FDIC”) and the Florida Office of Financial Regulation (the “OFR”). Pursuant to the Stipulation, Oceanside has consented, without admitting or denying any charges of unsafe or unsound banking practices or violations of law or regulation, to the issuance of a Consent Order by the FDIC and the OFR, also effective as of January 7, 2010.

The Consent Order represents an agreement among Oceanside, the FDIC, and the OFR as to areas of Oceanside’s operations that warrant improvement and presents a plan for making those improvements. The Consent Order imposes no fines or penalties on Oceanside. A summary of the Consent Order follows:

·	Oceanside’s Board of Directors is required to increase its participation, approve a management plan for the purpose of providing qualified management for Oceanside, and provide more detailed management reports.

·	During the life of the Consent Order, Oceanside shall not add any individual to Oceanside’s Board of Directors or employ any individual as a senior executive officer without the prior non-objection of the FDIC and the OFR.

Within 90 days of the effective date of the Consent Order and, thereafter, during the life of the Consent Order, Oceanside shall achieve and maintain a Tier 1 Leverage Capital Ratio of not less than 8% and a Total Risk Based Capital Ratio of not less than 11%. In the event such ratios fall below such levels, Oceanside shall notify the FDIC and the OFR and shall increase capital in an amount sufficient to reach the required ratios within 90 days of such notice.

·	Oceanside shall also be required to maintain a fully funded Allowance for Loan and Lease Losses (“ALLL”), the adequacy of which shall be satisfactory to the FDIC and the OFR.

Oceanside must review, revise, and adopt its written liquidity, contingency funding, and funds management policy to provide effective guidance and control over Oceanside’s funds management activities. Oceanside must also implement adequate models for managing liquidity; and, calculate monthly the liquidity and dependency ratios

·	Throughout the life of the Consent Order, Oceanside shall not accept, renew, or rollover any brokered deposit, and comply with the restrictions on the effective yields on deposits exceeding national averages.

·	While the Consent Order is in effect, Oceanside shall notify the FDIC and the OFR, at least, 60 days prior to undertaking asset growth in excess of 10% or more per annum or initiating material changes in asset or liability composition.

·	While the Consent Order is in effect, Oceanside shall not declare or pay dividends, interest payments on subordinated debentures or any other form of payment representing a reduction in capital without the prior written approval of the FDIC and the OFR.

While the Consent Order remains in effect, Oceanside shall, within 30 days of the receipt of any official Report of Examination, eliminate from its books any remaining balance of any assets classified “Loss” and 50% percent of those classified “Doubtful”, unless otherwise approved in writing by the FDIC and the OFR. Within 60 days from the effective date of the Consent Order, Oceanside shall formulate a plan, subject to approval by the FDIC and the OFR, to reduce Oceanside’s risk exposure in each asset, or relationship in excess of $500,000 classified “Substandard” by the FDIC in November 2008.

·	Oceanside shall also reduce the aggregate balance of assets classified “Substandard” by the FDIC in November 2008, in accordance with the following schedule: (i) within 90 days to not more than 100% of Tier 1 capital

- 36 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

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

plus the ALLL; (ii) within 180 days to not more than 85% of Tier 1 capital plus the ALLL; (iii) within 270 days to not more than 60% of Tier 1 capital plus the ALLL; and (iv) Within 360 days to not more than 50% of Tier 1 capital plus the ALLL. Oceanside is on schedule to meet the first and second targeted goals. Oceanside anticipates needing to increase its Tier 1 capital or successfully work out an appropriate amount of “Substandard” assets to meet the third and fourth targeted ratios.

Beginning with the effective date of the Consent Order, Oceanside shall not extend any credit to, or for the benefit of, any borrower who has a loan that has been charged off or classified “Loss” or “Doubtful” and is uncollected. Additionally, during the life of the Consent Order, Oceanside shall not extend, directly or indirectly, any additional credit to, or for the benefit of, any borrower who has a loan or other extension of credit from Oceanside that has been classified “Substandard”, and is uncollected, unless Oceanside documents that such extension of credit is in Oceanside’s best interest.

·	Within 30 days from the effective date of the Consent Order, Oceanside will engage a loan review analyst who shall review all loans exceeding $500,000.

Within 60 days from the effective date of the Consent Order, Oceanside shall revise, adopt, and implement a written lending, underwriting, and collection policy to provide effective guidance and control over Oceanside’s lending function. In addition, Oceanside shall obtain adequate and current documentation for all loans in Oceanside’s loan portfolio. Within 30 days from the effective date of the Consent Order, the Board shall adopt and implement a policy limiting the use of loan interest reserves to certain types of loans.

Within 60 days from the effective date of the Consent Order, Oceanside shall perform a risk segmentation analysis with respect to the any other concentration deemed important by Oceanside. The plan shall establish appropriate commercial real estate (“CRE”) lending risk limits and monitor concentrations of risk in relation to capital.

Within 30 days from the effective date of the Consent Order, Oceanside shall formulate and fully implement a written plan and a comprehensive budget. Within 60 days from the effective date of the Consent Order, Oceanside shall prepare and submit to the FDIC and the OFR for comment a business strategic plan covering the overall operation of Oceanside.

·	Within 30 days of the end of each calendar quarter following the effective date of the Consent Order, Oceanside shall furnish written progress reports to the FDIC and the OFR detailing the form, manner, and results of any actions taken to secure compliance.

Oceanside is in the process of evaluating and developing responses, policies, procedures, analyses, and training to address matters enumerated in the Consent Order. In management’s opinion, many of the cited criticisms have been addressed or Oceanside is no longer engaged in the activity.

Oceanside did not meet the April 7, 2010, deadline to raise additional capital as required by the Consent Order. However, the Holding Company is exploring strategic alternatives intended to result in attaining such capital ratios during 2010.

On March 26, 2010, the Holding Company entered into a mutual agreement (“Written Agreement”) with the Federal Reserve Bank of Atlanta (the "Reserve Bank") to maintain the financial soundness of the Holding Company so that the Holding Company may serve as a source of strength to Oceanside. The Holding Company and the Reserve Bank agree as follows:

·	The Holding Company shall not declare or pay any dividends without the prior written approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation (the "Director") of the Board of Governors of the Federal Reserve System (the "Board of Governors").

·	The Holding Company shall not directly or indirectly take dividends or any other form of payment representing a reduction in capital from the Bank without the prior written approval of the Reserve Bank.

·	The Holding Company and its nonbank subsidiary shall not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior written approval of the Reserve Bank and the Director.

- 37 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

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

The Holding Company and any nonbank subsidiary shall not, directly or indirectly, incur, increase, or guarantee any debt without the prior written approval of the Reserve Bank. All requests for prior written approval shall contain, but not be limited to, a statement regarding the purpose of the debt, the terms of the debt, and the planned source(s) for debt repayment, and an analysis of the cash flow resources available to meet such debt repayment.

·	The Holding Company shall not, directly or indirectly, purchase or redeem any shares of its stock without the prior written approval of the Reserve Bank.

In appointing any new director or senior executive officer, or changing the responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position, the Holding Company shall comply with the notice provisions of section 32 of the FDI Act (12 U.S.C. § 1831i) and Subpart H of Regulation Y of the Board of Governors (12 C.F.R. §§ 225.71 et seq.).

·	The Holding Company shall comply with the restrictions on indemnification and severance payments of section 18(k) of the FDI Act (12 U.S.C. § 1828(k)) and Part 359 of the Federal Deposit Insurance Corporation's regulations (12 C.F.R. Part 359).

Within 30 days after the end of each calendar quarter following the date of this Written Agreement, the board of directors shall submit to the Reserve Bank written progress reports detailing the form and manner of all actions taken to secure compliance with the provisions of this Written Agreement and the results thereof, and a parent company only balance sheet, income statement, and, as applicable, report of changes in stockholders' equity.

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 including Internet-based institutions. 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, Oceanside. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies of Atlantic conform with U.S. generally accepted accounting principles 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 accounting principles generally accepted in the United States of America 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 valuation of foreclosed assets, the realization of deferred tax assets, other-than-temporary impairments of securities, and the fair value of financial instruments.

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.

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

- 38 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

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

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 to value 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 the carrying value of foreclosed assets. Such agencies may require Atlantic to recognize additional losses based on their judgments about information available to them at the time of their examination.

For the year ended December 31, 2009 :

·	Atlantic has a prior history of taxable earnings prior to losses that began in 2008. Since inception in 1997, Atlantic has reported taxable income in 10 of 12 years through 2008, with cumulative taxable income of nearly $9.0 million through 2008.

·	Management and the Board of Directors have discussed a tax strategy that would generate taxable income of approximately $1.2 from the liquidation of bank-owned life insurance policies.

·	Converting tax-exempt investment income to taxable investment income, which could increase taxable income by almost $1.0 million and book income by $0.4 million.

·	Repurchase of junior subordinated debentures at a discount.

·	Termination of all or a portion of the Bank’s deferred compensation plan, which would generate up to $1.6 million in book taxable income and reduce the deferred tax asset by $0.6 million.

- 39 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

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

For the year ended December 31, 2008 :

At December 31, 2008, management believed that the negative evidence was outweighed by certain positive evidence. Atlantic had a prior history of earnings outside of the recent losses and believed that changes had been made to allow Atlantic to return to an earnings position, including reductions in payroll and other operating costs. At that time, management believed it was more likely than not that Atlantic would realize the deferred tax asset through future operating income. Accordingly, no deferred tax valuation allowance was recorded at December 31, 2008.

Accounting Hierarchy - In June 2009, the Financial Accounting Standards Board (“FASB”) issued guidance that restructured generally accepted accounting principles (“GAAP”) and simplified access to all authoritative literature by providing a single source of authoritative nongovernmental GAAP. The guidance is presented in a topically organized structure referred to as the FASB Accounting Standards Codification (“ASC”). The new structure is effective for interim and annual periods ending after September 15, 2009. All existing standards have been superseded and all other accounting literature not included is considered nonauthoritative. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative GAAP for SEC registrants. The adoption of this standard did not have a material impact on Atlantic’s results of operations or financial position.

Cash and Cash Equivalents - For purposes of the Consolidated Statements of Cash Flows , cash and cash equivalents include cash and due from banks, interest-bearing deposits, and federal funds sold, all of which mature within ninety days. At December 31, 2009 and 2008, interest-bearing deposits include $438,000 and $154,000, respectively, of deposits in the Federal Home Loan Bank.

Oceanside is required by law or regulation to maintain cash reserves on hand or with the Federal Reserve Bank of Atlanta. The minimum reserve balances were approximately $1,834,000 and $1,664,000 at December 31, 2009 and 2008, respectively.

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 (loss). 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 (loss). Gains and losses on sales of securities are determined by 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 2009 and 2008, Atlantic did not engage in trading securities.

- 40 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

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

The FASB recently issued accounting guidance related to the recognition and presentation of other-than-temporary impairment (FASB ASC 320-10). See the Recent Accounting Pronouncements section for additional information.

Prior to the adoption of the recent accounting guidance on April 1, 2009, management considered, in determining whether other-than-temporary impairment exists, (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Declines in the fair value of individual 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, 2009, 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 for hedging purposes.

Securities Purchased Under Agreements to Resell And Securities Sold Under Agreements to Repurchase - Securities purchased under agreements to resell and securities sold under agreements to repurchase are generally accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were acquired or sold plus accrued interest. Securities, generally U.S. government and Federal agency securities, pledged as collateral under these financing arrangements cannot be sold or repledged by the secured party. The fair value of collateral either received from or provided to a third party is continually monitored, and additional collateral is obtained or requested to be returned as appropriate.

Restricted Stock - At December 31, 2009 and 2008, Oceanside owned Federal Home Loan Bank stock, carried at cost, totaling $1,126,000 and $751,000, respectively. The stock is considered restricted, and the amount is required to be maintained based on a percentage of Oceanside’s total assets. Oceanside also maintained stock, carried at cost, as a condition of its correspondent banking relationship with one bank (two banks at December 31, 2008) totaling $25,000 and $204,000 at December 31, 2009 and 2008, respectively. During 2009, Oceanside recognized a $179,000 loss on restricted stock owned at December 31, 2008, issued by one of the correspondent banks that was taken over by the FDIC during 2009.

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, 2009 or 2008. Loans originated for sale in 2008 totaled $11.6 million. The income from mortgage banking operations totaled $17,000 for 2008. There were no loans originated or income from mortgage banking operations in 2009.

Oceanside originates loans with a guaranty from the Small Business Administration (“SBA”). Oceanside does not classify SBA loans (or the SBA-guaranteed portion) as held-for-sale, as the intent is to generally hold SBA loans to maturity in Oceanside’s held-for-investment portfolio. There were no sales of SBA loans in 2009 or 2008. Typically, if an SBA loan is sold, no loan servicing is retained by Oceanside.

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. Loan origination fees are capitalized and certain direct origination costs are deferred. Both are recognized as an adjustment of the yield of the related loan over the estimated life of the loan.

- 41 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

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

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 and Impaired Loans - The allowance for loan losses is established as probable losses are estimated 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 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.

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 estimated useful lives of assets. 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 (Including Other Real Estate Owned ) - Assets acquired through, or in lieu of, loan foreclosure are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure,

- 42 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

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

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. Subsequent changes in value are reported as adjustments to the carrying amount, not to exceed the initial carrying value of the foreclosed assets at the time of the transfer. Revenue and expenses from operations and changes in the valuation allowance are included in other operating expenses. At December 31, 2009 and 2008, foreclosed assets including repossessed vehicles and other assets totaled $-0- and $75,000, respectively, and other real estate owned of $1,727,000 and $3,421,000, respectively.

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 consolidated 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 (i) the assets have been isolated from Atlantic, (ii) 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 (iii) Atlantic does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Benefit Plans - Costs associated with the savings incentive plan ( see Note 9 ) are charged to salaries and employee benefits expense when accrued. The accounting for income and costs associated with the director and management benefit plans is more fully described at Note 9 .

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 purposes 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.

Comprehensive Income - ASC 220, Comprehensive Income , establishes standards for reporting and presentation of comprehensive income and its components in a full set of general-purpose financial statements. ASC 220 was issued to address concerns over the practice of reporting elements of comprehensive income directly in equity. In accordance with the provisions of ASC 220, Atlantic has included in the accompanying consolidated financial statements comprehensive income resulting from such activities. Comprehensive income (loss) consists of the net income (loss) and net unrealized gains (losses) on investment securities available-for-sale.

These amounts are reported net of the income tax benefit (expense) less any related allowance for realization. Also, accumulated other comprehensive income (loss) is included as a separate disclosure within the Consolidated Statements of Stockholders’ Equity in the accompanying consolidated financial statements.

Computation of Per Share Earnings - Basic earnings (losses) per share (“EPS”) amounts are computed by dividing net earnings (losses) by the weighted average number of common shares outstanding for the years ended December 31, 2009 and 2008. Diluted EPS are computed by dividing net earnings (losses) by the weighted average number of shares and all dilutive potential shares outstanding during the period. Atlantic has no dilutive potential shares outstanding for 2009 or 2008. The following information was used in the computation of EPS on both a basic and diluted basis for the years ended December 31, 2009 and 2008 (dollars in thousands except per share data):

- 43 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

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

	For the Years Ended December 31,
	2009			2008
Basic EPS computation:
Numerator - Net income (loss)	$	(7,240	)	$	(1,927	)
Denominator - Weighted average shares outstanding (rounded)		1,248			1,248
Basic EPS	$	(5,80	)	$	(1.54	)

Diluted EPS computation:
Numerator - Net income (loss)	$	(7,240	)	$	(1,927	)
Denominator - Weighted average shares outstanding (rounded)		1,248			1,248
Diluted EPS	$	(5.80	)	$	(1.54	)

Advertising and Business Development - Atlantic expenses advertising and business development costs as incurred. Advertising and business development costs for 2009 and 2008 as included in other operating expenses were $95,000 and $145,000, respectively.

Guarantees - ASC 460, Guarantees, requires certain guarantees to be recorded at fair value. In general, ASC 460 applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying obligation that is related to an asset, liability, or an equity security of the guaranteed party. Atlantic has not begun recording a liability and an offsetting asset for the fair value of any standby letters of credit because Interpretation 45 was not material to the financial condition or results of operations of Atlantic. Interpretation 45 also requires certain disclosures, even when the likelihood of making any payments under the guarantee is remote. These disclosures are included in Note 9 .

Recent Accounting Pronouncements - In June 2009, the FASB issued new authoritative accounting guidance under ASC Topic 810, Consolidation , which amends prior guidance to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The new authoritative accounting guidance requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. The new authoritative accounting guidance under ASC Topic 810 will be effective January 1, 2010 and is not expected to have a significant impact on Atlantic’s financial statements.

In April 2009, the FASB issued new guidance impacting ASC Topic 820, Fair Value Measurements and Disclosures . This ASC provides additional guidance in determining fair values when there is no active market or where the price inputs being used represent distressed sales. It reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. The adoption of this new guidance did not have a material effect on Atlantic’s results of operations or financial position.

In April 2009, the FASB issued new guidance impacting ASC 825-10-50, Financial Instruments , which relates to fair value disclosures for any financial instruments that are not currently reflected on the balance sheet of companies at fair value. This guidance amended existing GAAP to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This guidance is effective for interim and annual periods ending after June 15, 2009. Atlantic has presented the necessary disclosures in Note 14 herein.

In April 2009, the FASB issued new guidance impacting ASC 320-10, Investments - Debt and Equity Securities , which provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. This guidance is effective for interim and annual periods ending after June 15, 2009. Atlantic has presented the necessary disclosures in Note 14 herein.

- 44 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

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

In August 2009, the FASB issued ASU No. 2009-05, Fair Value Measurements and Disclosures (Topic 820 ) - Measuring Liabilities at Fair Value . This ASU provides amendments for fair value measurements of liabilities. It provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more techniques. ASU 2009-05 also clarifies that when estimating a fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. ASU 2009-05 is effective for the first reporting period (including interim periods) beginning after issuance or fourth quarter 2009. Atlantic is currently evaluating the impact of this standard on Atlantic’s financial condition, results of operations, and disclosures.

The FASB issued new authoritative accounting guidance under ASC Topic 855, Subsequent Events , which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. ASC Topic 855 defines (i) the period after the balance sheet date during which a reporting entity’s management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, (ii) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and (iii) the disclosures an entity should make about events or transactions that occurred after the balance sheet date. The new authoritative accounting guidance under ASC Topic 855 is effective for periods ending after June 15, 2009. The required disclosures are provided in Note 1 below.

Emerging Issues Task Force (EITF) Issue No. 06-4, “Accounting for Deferred Compensation and Post-retirement Benefit Aspects of Endorsement Split Dollar Life Insurance Arrangements.” EITF 06-4 requires the recognition of a liability and related compensation expense for endorsement split-dollar life insurance policies that provide a benefit to an employee that extends to post-retirement periods. Under EITF 06-4, life insurance policies purchased for the purpose of providing such benefits do not effectively settle an entity’s obligation to the employee. Accordingly, the entity must recognize a liability and related compensation expense during the employee’s active service period based on the future cost of insurance to be incurred during the employee’s retirement. If the entity has agreed to provide the employee with a death benefit, then the liability for the future death benefit should be recognized by following the guidance in SFAS 106, “Employer’s Accounting for Post-retirement Benefits Other Than Pensions.” Atlantic adopted EITF 06-4 on January 1, 2008, as a change in accounting principle through a cumulative-effect adjustment to retained earnings totaling $80,979.

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.

Subsequent Events - During 2009, Atlantic adopted ASC 855, Subsequent Events , that addresses events which occur after the balance sheet date but before the issuance of financial statements. Under ASC 855, an entity must record the effects of subsequent events that provide evidence about conditions that existed at the balance sheet date and must disclose but not record the effects of subsequent events which provide evidence about conditions that did not exist at the balance sheet date.

Reclassification of Comparative Amounts - Certain comparative amounts for prior years have been reclassified to conform to current-year presentations. Such reclassifications did not affect net income or retained earnings.

- 45 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 2 -

REGULATORY OVERSIGHT, CAPITAL ADEQUACY, OPERATING LOSSES, AND MANAGEMENT’S PLANS

As a result of the extraordinary effects of what may ultimately be the worst economic downturn since the Great Depression, the capital of Atlantic and Oceanside have been significantly depleted. The combined losses in 2009 and 2008 of $9.2 million recorded by Atlantic were attributable to significant increases in the provision for credit losses, write-downs on nonperforming assets, the establishment of a valuation reserve against Atlantic’s deferred tax asset, and the reduced loan interest and fee income and higher costs associated with nonperforming loans and other real estate owned. The impact of the current financial crisis in the U.S. and abroad is having far-reaching consequences and it is difficult to say at this point when the economy will begin to recover. As a result, we cannot assure you that we will be able to resume profitable operations in the near future, or at all.

We have determined that significant additional sources of capital or the implementation of strategies to enhance existing capital will be required for us to resume profitable operations beyond 2010. Atlantic’s Board of Directors has formed a strategic planning committee. The committee has hired an investment banking firm to seek all strategic alternatives to enhance the stability of Atlantic including a capital investment, sale, strategic merger, or some form of restructuring. We are exploring other options to restructure our balance sheet to generate income and capital. There can be no assurance that Atlantic will succeed in these efforts and be able to comply with the new regulatory requirements. In addition, a transaction, which would likely involve equity financing, would result in substantial dilution to our current stockholders and could adversely affect the price of our common stock. If Atlantic does not comply with mandated capital requirements, the regulators could take additional enforcement action against the Holding Company and Oceanside.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future, and do not include any adjustments to reflect the possible future effects on the recoverability or classification of assets, and the amounts or classification of liabilities that may result from the outcome of any regulatory action, which would affect our ability to continue as a going concern.

Based upon the financial condition of Oceanside, and subsequent correspondence and discussions with the FDIC, we have entered into a Consent Order that has been described in detail at Note 1 . Based on our budget approved in our most recent strategic planning session of the Board of Directors, we need approximately $1-2 million in capital to achieve and maintain the adequately capitalized status during 2010. To achieve the capital levels mandated by the Consent Order, we must increase our capital $13-$15 million, which may come from a combination of raising new capital and/or restructuring our balance sheet. Besides our efforts to raise additional capital, we have identified up to $4 million in other changes that may improve our capital ratios including eliminating our bank owned life insurance, reducing or eliminating certain retirement benefits, and the potential sale of assets. In order to improve our Tier 1 leverage ratio, we may also shrink our total assets.

Atlantic’s short term capital plan is to improve our risk-based capital ratios to keep Oceanside adequately capitalized during 2010, based on Tier 1 leverage ratio requirements. This may be achieved by raising additional capital or successfully executing other strategies. While capital has been difficult to raise, community banks in our local market have successfully raised capital in 2009 and 2010.

Our losses in 2009 and 2008 were largely due to the rapid deterioration in the credit quality of a few of our loans secured by real estate. While we cannot predict the timing of any recovery in our local market and unemployment remains at high levels, some improvements have been noted as follows:

·	Our level of past due loans at year-end 2009 have improved from year-end 2008, with an overall reduction of $2.2 million of which $1.8 million is attributable to the 30-89 days past due category - possibly a lending indicator of a reduction in future charge-offs.

- 46 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 2 -

REGULATORY OVERSIGHT, CAPITAL ADEQUACY, OPERATING LOSSES, AND MANAGEMENT’S PLANS (Continued)

A significant portion of our 2009 and 2008 charge-offs and expenses related to two projects and one single family residence. Approximately 68% of the total charge-offs of $6.4 million in 2009 and 2008 were attributable to one multifamily project and a single family residence. Specifically identified expenses related to the multifamily project and other real estate owned reduced earning by $1.2 million in 2009 and $0.8 million in 2008.

Despite recording net charge-offs of $6.3 million during 2009 and 2008, we increased our allowance for loan losses to 3.25% of total loans. The allowance for loan losses covers over 97% of our nonperforming loans at December 31, 2009. If the economy improves, the level of future additions to these reserves may subside, which will likely improve our capital ratios as the overall credit risks decline.

In 2009, we took a noncash charge to earnings of $2.8 million to establish a valuation allowance for our deferred tax assets. While Atlantic has a history of earnings prior to 2008, accounting practices limit our continued recognition of the deferred tax assets in 2009. We expect to be able to utilize some or all of these benefits once the current economic cycle improves and we return to our historical profit levels.

Beginning in the fourth quarter of 2009 and continuing into 2010, we have been reducing Oceanside’s total assets. Our unaudited and preliminary results at March 31, 2010, show Oceanside’s total bank-only assets at $286.1 million, a reduction of $11.3 million from December 31, 2009. This contributed to an increase in our Tier 1 leverage ratio from 4.06% to 4.32%.

Atlantic is exposed to the weakened real estate conditions in the Florida markets of Duval and St. Johns Counties. Atlantic believes the challenging market conditions are primarily attributable to a regional softening in demand for real estate assets as well as an oversupply of residential and commercial properties, particularly within Atlantic’s local markets. However, existing home sales by area realtors have increased substantially and this decrement in existing real estate inventories, if sustained, may drive improvement in the regional economy during the coming year. For comparison, 2009 single-family, existing homes and condominiums increased 21% and 38% over 2008 levels. While some trends have stabilized or have begun to show improvement, we remain susceptible to rising unemployment rates for the region that are expected to remain relatively high through 2010.

Although no assurances can be given that we will successfully implement our plans, that economic conditions will improve, and/or losses will return to pre-2008 levels, we are confident that certain actions that we can control will improve our capital ratios in 2010.

[Remainder of page left intentionally blank.]

- 47 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 3 - INVESTMENT SECURITIES

Our investment securities consist of residential real estate mortgage investment conduits (“REMICs”) and residential mortgage pass-through securities (“MBS”) all of which are issued or guaranteed by U.S. Capital Government agencies such as FNMA, FHLMC, and GNMA. The amortized cost and estimated fair value of instruments in debt and equity securities at December 31, 2009 and 2008, follow (dollars in thousands):

	December 31, 2009									December 31, 2008
			Gross		Gross							Gross		Gross
	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
Available-for-sale
REMICs	$	134	$	3	$	-		$	137	$	2,700	$	5	$	(6	)	$	2,699
MBS		42,428		217		(240	)		42,405		12,171		40		(40	)		12,171
		42,562		220		(240	)		42,542		14,871		45		(46	)		14,870
Held-to-maturity
State, county and
municipal bonds		14,989		154		(395	)		14,748		15,536		133		(771	)		14,898
Total investment securities	$	57,551	$	374	$	(635	)	$	57,290	$	30,407	$	178	$	(817	)	$	29,768

Information pertaining to securities with gross unrealized losses at December 31, 2009 and 2008, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Less Than Twelve Months					Over Twelve Months						Total
	Gross					Gross						Gross
	Unrealized			Fair		Unrealized			Fair			Unrealized			Fair
	Losses			Value		Losses			Value			Losses			Value
December 31, 2009 :
Available-for-Sale
REMICs	$	-		$	-	$	-		$	-		$	-		$	-
MBS		(240	)		23,020		-			-			(240	)		23,020
	$	(240	)	$	23,020	$	-		$	-		$	(240	)	$	23,020
Held-to-Maturity
State, county, and municipal bonds	$	(165	)	$	4,763	$	(230	)	$	2,867		$	(395	)	$	7,630

December 31, 2008 :
Available-for-Sale
REMICs	$	(6	)	$	927	$	-		$	-		$	(6	)	$	927
MBS		(40	)		10,881		-			-			(40	)		10,881
	$	(46	)	$	11,808	$	-		$	$(46	)	$	11,808
Held-to-Maturity
State, county, and municipal bonds	$	(393	)	$	6,590	$	(378	)	$	3,868		$	(771	)	$	10,458

Management evaluates securities for other-than-temporary impairment at least on a monthly 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 losses on investment securities were caused by interest rate changes. It is expected that the securities would not be settled at a price less than the par value of the investments. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because Atlantic has the ability and intent to hold these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired. The estimated fair value of securities is determined on the basis of market quotations.

- 48 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 3 - INVESTMENT SECURITIES (Continued)

The following is a summary of the effects on the Consolidated Statements of Stockholders’ Equity at December 31, 2009 and 2008 (dollars in thousands):

	2009			2008

Gross unrealized losses on investment securities available-for-sale	$	(20	)	$	(1	)
Deferred tax benefit on unrealized losses		7			-
Balance, December 31	$	(13	)	$	(1	)

The following presents the net change in unrealized gains or losses on investment securities available-for-sale that are shown as a component of stockholders’ equity and comprehensive income (loss) for the years ended December 31, 2009 and 2008 (dollars in thousands):

	2009			2008

Unrealized holding gains on investment securities arising during period	$	37		$	480
Less: reclassification adjustment for gains included in net loss		(56	)		(346	)
Other comprehensive income (loss), before tax		(19	)		134
Income tax benefit (expense) related to items of other comprehensive income (loss)		7			(51	)
Other comprehensive income (loss), net of tax	$	(12	)	$	83

Gross gains and losses on sales of investment securities in 2009 totaled $56,000 and $-0-, respectively. Gross gains and losses on sales of investment securities in 2008 totaled $346,000 and $-0-, respectively.

At December 31, 2009, securities with a carrying value of $1,497,000 and fair value of $1,443,000 were pledged to secure deposits of public funds from the state of Florida and treasury tax and loan deposits with the Federal Reserve. Securities were pledged as collateral for Federal Reserve Borrowings and to secure public funds from the State of Florida, Federal Reserve discount window, and treasury tax and loan deposits in 2009 and 2008. The amortized cost of these securities was $5,656,000 and $5,023,000, respectively, and the fair values of these pledged securities were $5,461,000 and $4,711,000 respectively, as of December 31, 2009 and 2008.

There were no securities of a single issuer (which were non-governmental or non-government sponsored) that exceeded 10% of stockholders’ equity at December 31, 2009 or 2008.

The cost and estimated fair value of debt and equity securities at December 31, 2009 and 2008, 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).

	Securities Available-for-Sale				Securities Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
December 31, 2009:
Due in one year or less	$	3,045	$	3,104	$	-	$	-
Due after one through five years		4,973		5,086		271		286
Due after five through ten years		20,746		20,595		1,163		1,218
Due after ten years		13,798		13,757		13,555		13,244
	$	42,562	$	42,542	$	14,989	$	14,748

December 31, 2008:
Due in one year or less	$	639	$	639	$	-	$	-
Due after one through five years		1,074		1,075		-		-
Due after five through ten years		3,067		3,096		1,010		1,044
Due after ten years		10,091		10,060		14,526		13,854
	$	14,871	$	14,870	$	15,536	$	14,898

- 49 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 4 - LOANS AND FORECLOSED ASSETS

The loan portfolio at December 31, 2009 and 2008, is composed of the following (dollars in thousands):

	2009			2008
Real estate loans
Construction, land development, and other land	$	32,455		$	39,135
1-4 family residential		56,900			57,814
Multifamily residential		2,902			4,481
Commercial		93,455			88,762
Total real estate loans		185,712			190,192
Commercial loans		11,703			13,314
Consumer and other loans		3,315			3,548
Total loan portfolio		200,730			207,054
Less, deferred fees and other		(12	)		(25	)
Less, allowance for loan losses		(6,531	)		(3,999	)
Loans, net	$	194,187		$	203,030

At December 31, 2009 and 2008, fixed-rate loans (excluding nonaccrual loans) with maturities (or repricing) over one year totaled approximately $78.5 million and $33.3 million, respectively.

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

	2009			2008

Balance, beginning of period	$	3,999		$	2,169
Provisions charged to operating expenses		6,268			4,424
Loans charged-off		(3,761	)		(2,615	)
Recoveries		25			21
Balance, end of period	$	6,531		$	3,999

The following is a summary of information pertaining to impaired, nonaccrual, past due, and restructured loans (dollars in thousands):

	December 31,
	2009		2008

Loans evaluated for impairment with a measured impairment	$	16,061	$	13,050
Loans evaluated for impairment without a measured impairment		14,788		15,433
Total impaired loans	$	30,849	$	28,483
Valuation allowance related to impaired loans	$	4,380	$	1,717
Nonaccrual loans included above in impaired loan totals	$	6,715	$	5,459
Total loans past due ninety days or more and still accruing		8		1,656
Total nonperforming loans (“NPL”)		6,723		7,115
Restructured loans		17,372		3,566
Total NPL and restructured loans	$	24,095	$	10,681
Restructured loans included in nonaccrual loans above that are
considered troubled debt restructurings	$	1,842	$	4,386
Average nonaccrual loans during the year	$	7,031	$	5,130

At December 31, 2009 and 2008, interest income accrued and recorded on nonaccrual loans totaled $40,000 and $4,000, respectively, and interest earned but not recorded on nonaccrual loans at December 31, 2009 and 2008, was $533,000 and $176,000, respectively. No additional funds are committed to be advanced in connection with nonaccrual loans.

- 50 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 4 - LOANS AND FORECLOSED ASSETS (Continued)

A summary of the activity in Other Real Estate Owned follows for the years ended December 31, 2009 and 2008 (dollars in thousands):

	December 31,
	2009			2008

Balance, beginning of period	$	3,421		$	-
Transfers to OREO		513			6,034
Disposals		(1,621	)		(2,298	)
Write-downs		(586	)		(315	)
Balance, end of period	$	1,727		$	3,421

At December 31, 2009 and 2008, repossessed assets totaled $-0- and $75,000, respectively. During 2009 and 2008, $27,000 and $75,000, respectively, of assets were repossessed with disposals of $102,000 and $-0-, respectively.

NOTE 5 - FACILITIES

Facilities . A summary follows (dollars in thousands):

			Accumulated				Estimated
			Depreciation and		Net Book		Useful
	Cost		Amortization		Value		Lives
December 31, 2009:
Land and land improvements	$	750	$	-	$	750
Bank building and improvements		3,455		992		2,463	5 - 40 years
Furniture, fixtures, and equipment		2,271		2,118		153	3 - 10 years
	$	6,476	$	3,110	$	3,366

December 31, 2008:
Land and land improvements	$	750	$	-	$	750
Bank building and improvements		3,443		875		2,568	5 - 40 years
Furniture, fixtures, and equipment		2,248		1,983		265	3 - 10 years
	$	6,441	$	2,858	$	3,583

Depreciation and amortization of facilities totaled $252,000 and $313,000 in 2009 and 2008, 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, that expires in 2011, subject to two five-year renewal options. On August 22, 2002, Atlantic entered into a 20-year noncancelable operating lease agreement for a new branch at the corner of Kernan Boulevard South and Atlantic Boulevard, Jacksonville, Florida. Lease payments commenced in September 2003, and the branch opened December 15, 2003.

All other operating leases, consisting principally of computer, furniture, fixtures, and equipment, are not material.

- 51 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 5 - FACILITIES (Continued)

Total branch rent expense for 2009 and 2008 was $387,000 and $392,000, respectively. The future annual rental payments for the branch leases are due as follows (dollars in thousands):

Years Ending
December 31 ,	Amount

2010	$	332
2011		168
2012		84
2013		88
2014		94
Thereafter		862
	$	1,628

NOTE 6 - TIME DEPOSITS

Time deposits at December 31, 2009 and 2008, totaled $129,845,000 and $145,746,000, respectively. The scheduled maturities of time deposits were as follows (dollars in thousands):

	December 31, 2009				December 31, 2008
	Time, $100,000		Other Time		Time, $100,000		Other Time
	And Over		Deposits		And Over		Deposits

Three months or less	$	12,167	$	23,750	$	21,648	$	22,373
Over three through twelve months		27,274		42,181		21,122		42,696
Over twelve months through three years		5,871		16,908		8,501		28,428
Over three years		1,353		341		500		478
	$	46,665	$	83,180	$	51,771	$	93,975

Time deposits of less than $100,000 with a remaining maturity of one year or less totaled $65,931,000 at December 31, 2009. Time deposits of $100,000 or more with a remaining maturity of one year or less totaled $39,441,000 at December 31, 2009.

Interest expense on certificates of deposit of $100,000 or more totaled $1,548,000 and $2,378,000 for 2009 and 2008, respectively. Interest expense on other time deposits totaled $3,167,000 and $4,371,000 for 2009 and 2008, respectively. Early withdrawal penalties on certificates of deposit totaled $4,000 and $8,000 for 2009 and 2008, respectively, and have been netted against interest expense.

At December 31, 2009, Oceanside had $19,098,000 of brokered deposits, which are reflected in other time deposits. Interest expense on brokered deposits totaled $818,000 for 2009. At December 31, 2008, Oceanside had $26,343,000 of brokered deposits, which are reflected in other time deposits. Interest expense on brokered deposits totaled $1,174,000 for 2008.

- 52 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 7 - OTHER BORROWINGS

Short-Term Debt, Customer Repurchase Agreements . Atlantic has sold securities under agreements to repurchase, which effectively collateralize overnight borrowings. As of December 31, 2009, no borrowings were outstanding and no securities were sold under agreements to repurchase. The average balance of customer repurchase agreements for 2008 was $10,960,000, at a weighted average interest rate of 1.88%. Interest of $206,000 was recorded in 2008. The average balance of customer repurchase agreements and related interest expense was $-0- for 2009.

Other Short-term Borrowings . Atlantic purchases federal funds for liquidity needs during the year. At December 31, 2009 and 2008, there were no federal funds purchased. The average federal funds purchased during 2008, was $2,445,000, at a weighted average interest rate of 3.27%. Interest of $80,000 was recorded in 2008. The average balance of federal funds purchased and related interest expense was immaterial for 2009.

Long-Term Debt . A summary of long-term debt follows (dollars in thousands):

	December 31,
	2009		2008
FHLB of Atlanta advances
Convertible debt	$	2,300	$	2,300
Fixed debt		10,000		4,000
		12,300		6,300
Junior subordinated debentures		3,093		3,093
	$	15,393	$	9,393

FHLB of Atlanta Advances. At December 31, 2009 and 2008, Atlantic had obtained advances from FHLB of $12,300,000 and $6,300,000, respectively. At December 31, 2009 and 2008, the advances were collateralized by Atlantic’s FHLB capital stock in the amount of $1,126,000 and $751,000, respectively, and a blanket lien on eligible wholly-owned residential (1-4 units) loans, commercial first mortgage loans, and home equity loans with a carrying value of $43.3 million and $41.4 million, respectively. A summary follows (dollars in thousands):

					Balance of Advances
	Maturity				at December 31,				Interest Expense
	Date	Interest Rate			2009		2008		2009		2008

Convertible fixed rate debt	11/17/2010		4.45	%	$	2,300	$	2,300	$	104	$	104
Fixed rate advances	12/20/2010		1.91	%		2,000		4,000		64		45
Fixed rate advances	01/09/2012		2.30	%		8,000		-		181		-
					$	12,300	$	6,300	$	349	$	149

The weighted average rate for FHLB advances was 2.74% in 2009 and 3.27% in 2008. At December 31, 2009, the FHLB had determined that of the $43.3 million of pledged collateral, $21.6 million was the lendable collateral value.

Junior Subordinated Debentures. On September 15, 2005, Atlantic participated in a pooled offering of trust preferred securities. Atlantic formed Atlantic BancGroup Statutory Trust I (the "Trust"), a wholly-owned statutory trust subsidiary for the purpose of issuing the trust preferred securities. The Trust used the proceeds from the issuance of $3,000,000 in trust preferred securities to acquire fixed/floating rate junior subordinated deferrable interest debentures of Atlantic in the amount of $3,093,000. The trust preferred securities essentially mirror the debt securities, carrying a cumulative preferred dividend at a fixed rate of 5.886% equal to the interest rate on the debt securities, both payable quarterly for five years. Beginning September 15, 2010, the quarterly rates vary based on the three month LIBOR plus 150 basis points. The debt securities and the trust preferred securities each have 30-year lives. The trust preferred securities and the debt securities are callable by Atlantic or the Trust, at their respective option after five years, and at varying premiums and sooner in specific events, subject to prior approval by the Federal Reserve Board, if then required. Atlantic has treated the trust preferred securities as Tier 1 capital up to the maximum amount allowed, and the remainder, if any, as Tier 2 capital for federal regulatory purposes. There

- 53 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 7 - OTHER BORROWINGS (Continued)

are no required principal payments on the junior subordinated debentures over the next five years. Interest expense on the junior subordinated debentures totaled $183,000 in 2009 and $185,000 in 2008.

Under ASC 810, Consolidations , the Trust is not consolidated with Atlantic. Accordingly, Atlantic does not report the securities issued by the Trust as liabilities, and instead reports as liabilities the junior subordinated debentures issued by Atlantic and held by the Trust. At December 31, 2009 and 2008, Atlantic’s investment in the statutory trust of $93,000 has been included in Other Assets in the Consolidated Balance Sheets as an investment in an unconsolidated subsidiary.

NOTE 8 - INCOME TAXES

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

	Year Ended December 31,
	2009			2008
Current:
Federal	$	1,536		$	(585	)
State		263			(100	)
		1,799			(685	)
Deferred:
Federal		(1,257	)		(860	)
State		(215	)		(147	)
		(1,472	)		(1,007	)
Total income tax provision (benefit)	$	327		$	(1,692	)

A reconciliation of the income tax provision (benefit) computed at the federal statutory rate of 34% and the income tax provision (benefit) shown on the Consolidated Statements of Operations and Comprehensive Income , follows (dollars in thousands):

	2009						2008
				% of						% of
	Amount			Pretax			Amount			Pretax

Tax computed at statutory rate	$	(2,350	)		34.0	%	$	(1,230	)		34.0	%
Increase (decrease) resulting from:
State income taxes		(268	)		3.9			(88	)		2.4
Utilization of net operating losses		3,232			(46.8	)
Indexed retirement plan		(91	)		1.3			(78	)		2.2
Nontaxable interest income, net		(226	)		3.3			(217	)		6.0
Other		30			(0.4	)		(79	)		2.2
Income tax provision (benefit)	$	327			(4.7	)%	$	(1,692	)		46.8	%

- 54 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 8 - INCOME TAXES (Continued)

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

	December 31,
	2009			2008
Deferred tax asset:
Federal	$	3,083		$	1,815
State		528			311
		3,611			2,126
Deferred tax liability:
Federal		(115	)		(105	)
State		(20	)		(18	)
		(135	)		(123	)
Net deferred tax asset		3,476			2,003
Valuation allowance		(2,768	)		-
	$	708		$	2,003

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

	December 31,
	2009			2008

Allowance for loan losses	$	1,978		$	1,250
Director and management benefit plans		617			514
Net unrealized holding losses on securities		7			-
Other real estate owned write-downs		402			181
State income tax net operating loss carryforward		322			88
Nonaccrual interest		267			66
Depreciation		(135	)		(123	)
Other, net		18			27
Net deferred tax asset		3,476			2,003
Valuation allowance		(2,768	)		-
	$	708		$	2,003

Income tax (benefit) expense of $(7,000) and $51,000 for 2009 and 2008, respectively, 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 (Loss) .

ASC 740, Income Taxes (see Note 1 ), specifies that deferred income tax assets are to be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred income tax asset will not be realized. At December 31, 2009, a valuation allowance of $2,768,000 was established related to the continued net operating losses in 2009. Realization of the remaining $708,000 of deferred tax assets is dependent on generating sufficient taxable income in the future (or implementing tax strategies) prior to expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that $708,000 of the deferred tax asset will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced.

As discussed in Note 1 , based on management’s expectations of future earnings and tax strategies at December 31, 2008, no valuation allowance was established.

During 2009, Atlantic carried back all of its federal net operating losses and recorded a refund receivable estimated at $1,035,000. Atlantic has state net operating loss carryforwards of approximately $5.8 million, which are available to offset state income taxes in future years. These state net operating loss carryforwards do not expire.

- 55 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 8 - INCOME TAXES (Continued)

ASC 740 requires the presentation of a reconciliation of any unrecognized tax benefits as of the beginning and end of the year. During the period and as of December 31, 2009, there are no unrecognized tax benefits. Accordingly, no analysis of unrecognized tax benefits is included herein.

Interest and penalties associated with income tax filing requirements are recognized as a component of income tax expense, if material. As of December 31, 2009 and 2008, there is no material amount of penalties and interest related to tax return filings of Atlantic.

Atlantic’s consolidated income tax returns have not been audited since its inception. Atlantic's management believes that the years ended December 31, 2007, 2008, and 2009 are considered open, and would be subject to examination by the Internal Revenue Service if selected for audit.

NOTE 9 - BENEFIT PLANS

SIMPLE Plan. Atlantic sponsors a savings incentive plan (“SIMPLE Plan”) that covers substantially all employees. Atlantic matches each participant’s contribution, subject to a maximum of 3% through July 15, 2009, and thereafter, 1% 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 $39,000 and $64,000 for 2009 and 2008, respectively.

Director and Management Benefit Plans . Atlantic has adopted retirement benefit plans for Atlantic’s seven directors (including one director emeritus) and four of its current and former officers. The purpose of these plans is to retain qualified directors and members of management by offering a retirement benefit. Benefits under the plans began vesting over a five-year period, with service beginning in 1997. Upon his resignation from Atlantic, a former officer and director was 60% vested. All of the directors and the three current officers are fully vested at December 31, 2009.

Atlantic has purchased a pool of life insurance policies totaling $4,050,000 with funds 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 to Atlantic. At December 31, 2009 and 2008, the cash surrender values of these life insurance policies totaled $5,097,000 and $4,886,000 respectively. For 2009, the average yield on these life insurance policies was estimated at 4.45% (or a taxable equivalent yield of 7.12%).

Under the plans, as amended, eight of the current participants will begin receiving benefit payments for fifteen years following retirement. In addition, the beneficiaries of these eight participants will each receive death benefits of the lesser of (i) $100,000 or (ii) net investment at risk in the underlying insurance policies (cash value), with any remaining policy cash value payable to Atlantic. The remaining three participants will receive benefit payments over a twenty-year period following retirement. Following a participant’s death, any unpaid benefits will continue to the beneficiary (or beneficiaries) over the remaining term.

A summary of the activity for the director and management benefit plans follows (dollars in thousands):

	December 31,
	2009			2008

Policy income included in other income	$	229		$	220
Plan expense included in other operating expenses		(275	)		(294	)
Life insurance expense included in other operating expenses		(17	)		(14	)
Deferred income tax benefit		103			110
Net after income tax benefit	$	40		$	22

- 56 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 9 - BENEFIT PLANS (Continued)

In late-2008, director fees were discontinued and no director fees were paid in 2009. Beginning in 2010, the benefit expense accrual for the director and management plans was also discontinued.

NOTE 10 - 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 balance sheets. 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.

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. All letters of credit issued and outstanding at December 31, 2009, totaling $1,174,000, 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.

At December 31, 2009 and 2008, the following financial instruments were outstanding whose contract amounts represent credit risk for Atlantic (dollars in thousands):

	2009		2008
Commitments to extend credit (including unused lines of credit):
Revolving, open-end lines secured by 1-4 family residential properties
(home equity lines)	$	3,630	$	4,983
Commercial real estate, construction, and land development secured by real estate		1,186		2,186
Other		4,548		3,311
		9,364		10,480
Standby letters of credit		1,174		1,701
	$	10,538	$	12,181

Derivative Loan Commitments. At December 31, 2009, Atlantic did not have any material amounts of commitments to originate residential mortgage loans that will be sold to investors at a specified time in the future.

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. Access to the collateral is generally achieved by either (i) maintaining possession of the collateral, (ii) placing a recorded lien in the appropriate jurisdiction, or (iii) other means such as an assignment.

- 57 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)

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 on its consolidated balance sheet at fair value with a corresponding obligation to return it.

Exposure to Transactions with Correspondent Banks and Related Limitations on Interbank Liabilities. In the ordinary course of business, Oceanside may incur a loss if a correspondent bank defaults upon an obligation, which may include overnight federal funds, loan participations, and other interbank transactions. Management monitors its risks with these correspondents and places certain limitations upon the exposure.

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.

Change of Control Agreements. Atlantic has entered into agreements with its three executive officers that would provide certain benefits in the event of a change of control (as defined in the agreement) and, within three years of the change in control, the executive officer is terminated (without cause) or resigns. The change of control benefits include cash payments equal to 2.99 times the executive officer’s base annual compensation (as defined in the agreement) and continuation of health benefits for six months.

Other . At December 31, 2009 and 2008, Oceanside had $10.0 million and $19.5 million, respectively, of unsecured and secured lines of credit from other banks for the purchase of overnight federal funds. At December 31, 2009 and 2008, Atlantic had outstanding purchases in overnight federal funds of $-0- and $-0-, respectively, leaving $10.0 million and $19.5 million, respectively, available under these lines.

At December 31, 2009, securities with an amortized cost of $4.2 million and fair value of $4.0 were pledged to secure available advances of $3.1 million at the Federal Reserve Discount Window. Amounts available to be drawn at the Federal Reserve Discount Window are only allowed as overnight secondary credit and require prior approval from the Federal Reserve.

NOTE 11 - CONCENTRATIONS OF CREDIT

Substantially all of Atlantic's loans, commitments, and standby letters of credit have been granted to customers in northeast Florida, including Duval and St. Johns counties. 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, which can be affected by a number of events domestically and internationally.

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 $2.9 million at December 31, 2009 ($4.8 million for loans qualifying for the 25% limit). Atlantic does not have any significant concentrations in any one industry or customer.

- 58 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 12 - 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 2009 and 2008 for such loans follows (dollars in thousands):

	2009			2008

Beginning of year balance	$	6,570		$	6,164
Additions		1,597			1,040
Reductions		(268	)		(634	)
End of year balance	$	7,899		$	6,570

Unfunded commitments to the same parties totaled $230,000 and $579,000 at December 31, 2009 and 2008, respectively. At December 31, 2009 and 2008, deposits and customer repurchase agreements with insiders totaled approximately $1.7 million and $10.1 million, respectively.

NOTE 13 - 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.

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. There were no retained earnings available at December 31, 2009, to pay cash dividends. Furthermore, the Consent Order discussed in Note 1 prohibits Oceanside from paying dividends to Atlantic. Atlantic’s dividend policy is to retain accumulated earnings to support its growth and maintain its capital levels.

[Remainder of page left intentionally blank.]

- 59 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 14 - OTHER OPERATING EXPENSES

Other operating expenses follow (dollars in thousands):

	2009		2008

Deposit insurance assessments	$	1,014	$	229
Processing and settlement fees		836		773
OREO and other loan collection expenses		520		544
Professional, legal, and audit fees		589		459
Write-down of other real estate owned		586		315
Pension expense		275		295
Expensed costs to raise capital		177		-
Telephone		132		134
Advertising and business development		95		145
Stationery, printing, and supplies		71		107
Postage, freight, and courier		63		80
Director fees		-		78
Insurance (excluding group insurance)		49		46
Dues and subscriptions		39		27
Other miscellaneous expenses		170		197
	$	4,616	$	3,429

NOTE 15 - FAIR VALUE DISCLOSURES

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 Due from Banks, Federal Funds Sold and Interest-Bearing Deposits - 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.

Restricted Stock - Fair value of Atlantic’s investment in Federal Home Loan Bank and correspondent banks’ stock is its cost.

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, and certain money market deposits 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. For long-term debt, the fair value is estimated using discounted cash flow analyses based on current incremental borrowing rates for similar types of borrowing arrangements.

- 60 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 15 - FAIR VALUE DISCLOSURES (Continued)

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.

Other - Accrued interest receivable on investment securities and loans and accrued interest payable on deposits and other borrowings are included in investment securities, loans, deposits, and other borrowings, accordingly. The carrying amount is a reasonable estimate of fair value.

The estimated fair values of Atlantic's financial instruments at December 31, 2009 and 2008, follow (dollars in thousands):

	Carrying		Fair
	Amount		Value
December 31, 2009 :
Financial Assets
Cash and cash equivalents	$	31,083	$	31,083
Investment securities and accrued interest receivable		57,844		57,603
Restricted stock		1,151		1,151
Loans and accrued interest receivable		194,963		189,436
Total assets valued	$	285,041	$	279,273

Financial Liabilities
Deposits and accrued interest payable	$	270,156	$	267,996
Other borrowings and accrued interest payable		15,520		15,520
Total liabilities valued	$	285,676	$	283,516

Off-Balance Sheet Commitments	$	10,538	$	10,538

December 31, 2008 :
Financial Assets
Cash and cash equivalents	$	17,177	$	17,177
Investment securities and accrued interest receivable		30,615		29,977
Restricted stock		955		955
Loans and accrued interest receivable		203,872		205,897
Total assets valued	$	252,619	$	254,006

Financial Liabilities
Deposits and accrued interest payable	$	240,134	$	261,720
Other borrowings and accrued interest payable		9,424		9,424
Total liabilities valued	$	249,558	$	271,144

Off-Balance Sheet Commitments	$	12,181	$	12,181

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, 2009, 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, 2009, should not necessarily be considered to apply at subsequent dates.

Atlantic has adopted ASC 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”). ASC 820-10, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820-10 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.

- 61 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 15 - FAIR VALUE DISCLOSURES (Continued)

ASC 820-10 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, ASC 820-10 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 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 Atlantic’s assets and liabilities measured at fair value on a recurring basis aggregated by the level in the fair value hierarchy within which those measurements fall.

(dollars in thousands)	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs
December 31, 2009	( Level 1 )		( Level 2 )		( Level 3 )		Total
Assets:
Investment securities, available-for-sale	$	-	$	42,542	$	-	$	42,542
Total assets at fair value	$	-	$	42,542	$	-	$	42,542

December 31, 2008
Assets:
Investment securities, available-for-sale	$	-	$	14,870	$	-	$	14,870
Total assets at fair value	$	-	$	14,870	$	-	$	14,870

Securities available-for-sale – The fair value of securities available for sale equals quoted market prices, if available. If quoted market prices are not available, fair value is determined using quoted market prices for similar securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange. Level 2 securities include mortgage-backed securities, other pass-through securities and collateralized mortgage obligations of government sponsored entities (GSE’s) and private issuers and obligations of states and political subdivision.

Certain other assets are measured at fair value on a nonrecurring basis. These adjustments to fair value usually result from application of lower of cost or fair value accounting or write-downs of individual assets due to impairment. For assets measured at fair value on a nonrecurring basis, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the related individual assets.

- 62 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 15 - FAIR VALUE DISCLOSURES (Continued)

(dollars in thousands)	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable						Net
	Identical Assets		Inputs		Inputs						Gains
December 31, 2009	( Level 1 )		( Level 2 )		( Level 3 )			Total			( Losses ) (1)
Assets:
Impaired loans, net of
direct write-offs	$	-	$	-	$	16,061		$	16,061
Specific valuation allowances		-		-		(4,380	)		(4,380	)
Impaired loans, net		-		-		11,681			11,681		$	(3,509	)
Foreclosed assets		-		-		1,727			1,727			(728	)
Total assets at fair value	$	-	$	-	$	13,408		$	13,408		$	(4,237	)


December 31, 2008
Assets:
Impaired loans, net of
direct write-offs	$	-	$	-	$	13,050		$	13,050
Specific valuation allowances		-		-		(1,717	)		(1,717	)
Impaired loans, net		-		-		11,333			11,333		$	(1,110	)
Foreclosed assets		-		-		3,496			3,496			(311	)
Total assets at fair value	$	-	$	-	$	14,829		$	14,829		$	(1,421	)

(1) Gains and losses include write-offs

Loans – Nonrecurring fair value adjustments to loans reflect full or partial write-downs that are based on the loan’s observable market price or current appraised value of the collateral in accordance with the implementation guidance in ASC 310, Receivables . Since the market for impaired loans is not active, loans subjected to nonrecurring fair value adjustments based on the loan’s observable market price are generally classified as Level 2. Loans subjected to nonrecurring fair value adjustments based on the current appraised value of the collateral may be classified as Level 2 or Level 3 depending on the type of asset and the inputs to the valuation. When appraisals are used to determine impairment and these appraisals are based on a market approach incorporating a dollar-per-square-foot multiple, the related loans are classified as Level 2. If the appraisals require significant adjustments to market-based valuation inputs or apply an income approach based on unobservable cash flows to measure fair value, the related loans subjected to nonrecurring fair value adjustments are typically classified as Level 3 due to the fact that Level 3 inputs are significant to the fair value measurement.

Foreclosed assets – These assets are reported at the lower of the loan carrying amount at foreclosure (or repossessions) or fair value written down by estimated cost to sale. Fair value is based on third party appraisals for other real estate owned and other independent sources for repossessed assets, considering the assumptions in the valuation, and are considered Level 2 or Level 3 inputs.

The following is a summary of activity of assets and liabilities measured at fair value on a nonrecurring basis (dollars in thousands):

	Impaired			Foreclosed
	Loans			Assets			Total

Balance, December 31, 2008	$	11,333		$	3,496		$	14,829
Write-downs		(3,509	)		(586	)		(4,095	)
Net transfers in/out Level 3		3,857			(1,183	)		2,674
Balance, end of period	$	11,681		$	1,727		$	13,408

- 63 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 16 - REGULATORY CAPITAL MATTERS

The Federal Reserve Board and other bank regulatory agencies have adopted risk-based capital guidelines for all banks and for bank holding companies whose consolidated assets are over $500 million. 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 1 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, 2009, Oceanside had not reached the capital levels specified in the Consent Order. There are no conditions or events, since the most recent notification, that management believes have changed the prompt corrective action category.

													To Be Well-
													Capitalized
													Under Prompt
								For Capital					Corrective Action
	Actual							Adequacy Purposes					Provisions
	Amount		Ratio			> Amount		> Ratio			> Amount		> Ratio
	(dollars in thousands)
As of December 31, 2009 :

Total capital to risk-weighted assets	$	15,361		7.68	%		NM		NM		$	22,007		11.00	% (1)
Tier 1 capital to risk-weighted assets	$	12,810		6.40	%		NM		NM			NM		NM
Tier 1 capital to average assets	$	12,810		4.06	%		NM		NM		$	25,228		8.00	% (1)

As of December 31, 2008 :

Total capital to risk-weighted assets	$	21,720		10.25	%	$	16,951		8.00	%	$	21,188		10.00	%
Tier 1 capital to risk-weighted assets	$	19,055		8.99	%	$	8,475		4.00	%	$	12,713		6.00	%
Tier 1 capital to average assets	$	19,055		7.25	%	$	10,519		4.00	%	$	13,149		5.00	%

(1)	Ratios required under the Consent Order.

NM	Not meaningful - the Consent Order does not specify.

- 64 -

Table of Contents

ATLANTIC BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2008

NOTE 17 - PARENT COMPANY FINANCIAL INFORMATION

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

Condensed Balance Sheets as of December 31:	2009		2008
	(Dollars in Thousands)
Assets
Cash and cash equivalents	$	1	$	13
Investment in and advances to subsidiary bank		12,798		19,899
Other assets		356		178
Total	$	13,155	$	20,090

Liabilities and Stockholders' Equity
Liabilities:
Other long-term borrowings	$	3,093	$	3,093
Due to subsidiary bank		223		-
Accrued expenses and other		159		65
		3,475		3,158
Stockholders' equity		9,680		16,932
Total	$	13,155	$	20,090

Condensed Statements of Operations and Stockholders' Equity

Years Ended December 31:	2009			2008
	(Dollars in Thousands)

Equity in net loss of subsidiary bank	$	(6,895	)	$	(1,685	)
Other income		5			5
Interest expense		(185	)		(185	)
Other expenses (net of income tax benefit)		(165	)		(62	)
Net loss		(7,240	)		(1,927	)
Stockholders' Equity:
Beginning of year		16,932			18,856
Net change in unrealized holding gains (losses)
on securities in subsidiary bank		(12	)		83
Cumulative effect adjustment -
Implementation of EITF 06-4		-			(80	)
End of year	$	9,680		$	16,932

Condensed Statements of Cash Flows

Years Ended December 31:	2009			2008

	(Dollars in Thousands)
Operating Activities
Net loss	$	(7,240	)	$	(1,927	)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Equity in undistributed losses of subsidiary bank		6,895			1,685
Other		333			247
Net Cash Provided By (Used In) Operating Activities		(12	)		5
Increase (Decrease) in Cash and Cash Equivalents		(12	)		5
Cash and Cash Equivalents:
Beginning of year		13			8
End of year	$	1		$	13

- 65 -

Table of Contents

PART IV

ITEM 15.

EXHIBITS.

The following exhibits are filed with or incorporated by reference into this report (see legend below).

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

(f)	Incorporated by reference on Atlantic’s Form 10-K for year ended December 31, 2009

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)

11	The computation of per share earnings is shown in the consolidated financial statements of Atlantic BancGroup, Inc. and Subsidiaries for December 31, 2008 and 2007, contained in Item 8, on Page 49 of the Notes to Consolidated Financial Statements

14	Code of Ethics for Senior Officers Policy (d)

21.1	Subsidiaries of the Registrant (f)

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

- 66 -

Table of Contents

SIGN ATURES

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 ninth day of August, 2010.

	ATLANTIC BANCGROUP, INC.

	/s/ Barry W. Chandler
	Barry W. Chandler
	Principal Executive Officer

	/s/ David L. Young
	David L. Young
	Principal Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Amendment Number 1 to Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the ninth day of August, 2010:

Signature		Title

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

/s/	Barry W. Chandler	President, Chief Executive Officer, and Director
	Barry W. Chandler

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

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

/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 -

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

Datos

Noticias

Herramientas

Mercados

Descubrir

Hot Features

Follow Feed

Flujo de Opciones

Monitor

ATBC Atlantic Bancgrp. (MM)

Noticias sobre ATBC

Su Consulta Reciente

Empresa

Negocios

Popular

Obtener la aplicación

Tendencias Ahora

Listas Principales

Datos

Noticias

Herramientas

Mercados

Descubrir

Hot Features

Follow Feed

Flujo de Opciones

Monitor

ATBC Atlantic Bancgrp. (MM)

Noticias sobre ATBC

Su Consulta Reciente

Empresa

Negocios

Popular

Obtener la aplicación