**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





**x
      QUARTERLY REPORT
      PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





**For
      the quarterly period ended March 31, 2007**





**OR**





**o
      TRANSITION REPORT
      PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





**Commission
      File Number 000-50962**





**ATLANTIC
                COAST FEDERAL CORPORATION**(Exact
                name of registrant as specified in its
                charter)




**FEDERAL**
            
            **59-3764686**(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification Number)**505
                Haines Avenue**
              **Waycross,
                Georgia**
            
            **31501**(Address
                of principal Executive Offices)
            
            (Zip
                Code)





Registrant's
      telephone number, including area code (800) 342-2824





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


YES
xNO
o


Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non-accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one):
 
 Large
                  Accelerated Filero
              Accelerated
                  Filero
              Non-Accelerated
                  Filerx




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


YES
oNO
x





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practicable date.




Class
            
            Outstanding
                at May 8, 2007Common
                Stock, $0.01 Par Value
            
            13,676,071
                shares









**ATLANTIC
      COAST FEDERAL CORPORATION**





**Form
      10-Q Quarterly Report**





**Table
      of Contents**







**PART
      I. FINANCIAL INFORMATION**


Page
                NumberItem
                1.
            Financial
                Statements
            2Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            11Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            21Item
                4.
            Controls
                and Procedures
            23





**PART
      II. OTHER INFORMATION**





Item
                1.
            Legal
                Proceedings
            23Item
                1A
            Risk
                Factors
            23Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            23Item
                3.
            Defaults
                upon Senior Securities
            24Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            24Item
                5.
            Other
                Information
            24Item
                6.
            Exhibits
            24Form
                10-Q
            Signature
                Page
            25Ex-31.1
            Section
                302 Certification of CEO
            26Ex-31.2
            Section
                302 Certification of CFO
            27Ex-32
            Section
                906 Certification of CEO and CFO
            28







**ATLANTIC
      COAST FEDERAL CORPORATION**


**CONSOLIDATED
      BALANCE SHEETS**


**March
      31, 2007 (unaudited) and December 31, 2006**


**(Dollars
      in Thousands, Except Share Information)**


2007
            
            2006ASSETSCash
                and due from financial institutions
            
            $
            10,192
            
            $
            10,571Short-term
                interest earning deposits
            
            
            37,122
            
            
            30,486Total
                cash and cash equivalents
            
            
            47,314
            
            
            41,057Other
                interest earning deposits in other financial institutions
            
            
            700
            
            
            1,200Securities
                available for sale
            
            
            129,402
            
            
            99,231Real
                estate mortgages held for sale
            
            
            8,392
            
            
            4,365Loans,
                  net of allowance for loan losses of $4,853 at March 31, 2007 and
$4,705
                  at December 31, 2006
            
            
            642,068
            
            
            639,517Federal
                Home Loan Bank stock
            
            
            7,988
            
            
            7,948Accrued
                interest receivable
            
            
            3,619
            
            
            3,499Land,
                premises and equipment
            
            
            17,365
            
            
            17,610Bank
                owned life insurance
            
            
            21,578
            
            
            21,366Other
                real estate owned
            
            
            932
            
            
            286Goodwill
            
            
            2,661
            
            
            2,661Other
                assets
            
            
            3,937
            
            
            4,085Total
                assets
            
            $
            885,956
            
            $
            842,825LIABILITIES
                AND STOCKHOLDERS' EQUITYDepositsNon-interest-bearing
                demand
            
            $
            43,002
            
            $
            38,301Interest-bearing
                demand
            
            
            53,883
            
            
            52,895Savings
                and money market
            
            
            189,406
            
            
            158,229Time
            
            
            307,910
            
            
            323,627Total
                deposits
            
            
            594,201
            
            
            573,052Securities
                sold under agreements to repurchase
            
            
            53,500
            
            
            29,000Federal
                Home Loan Bank advances
            
            
            142,000
            
            
            144,000Accrued
                expenses and other liabilities
            
            
            6,304
            
            
            5,686Total
                liabilities
            
            
            796,005
            
            
            751,738Commitments
                and contingencies
            
            
            -
            
            
            -Preferred
                  stock: $0.01 par value; 2,000,000 shares authorized none
                  issued
            
            
            -
            
            
            -Common
                stock: $0.01 par value; 18,000,000 shares authorized,shares
                issued of 14,813,469 at March 31, 2007 and December 31, 2006;
                sharesoutstanding
                    of 13,672,724 at March 31, 2007 and 13,784,330 at December 31,
                    2006
            
            
            148
            
            
            148Additional
                paid in capital
            
            
            58,161
            
            
            57,708Unearned
                  employee stock ownership plan (ESOP) shares of 314,226 at March
                  31, 2007 and 325,864 at December 31, 2006
            
            
            (3,142
            )
            
            (3,259
            )Retained
                earnings
            
            
            52,470
            
            
            52,297Accumulated
                other comprehensive income
            
            
            361
            
            
            210Treasury
                  stock, at cost, 1,140,745 shares at March 31, 2007 and 1,029,139
                  at December 31, 2006
            
            
            (18,047
            )
            
            (16,017
            )Total
                stockholders' equity
            
            
            89,951
            
            
            91,087Total
                liabilities and stockholders' equity
            
            $
            885,956
            
            $
            842,825


The
        accompanying notes are an integral part of these unaudited consolidated
        financial statements.
 
  2
  **ATLANTIC
        COAST FEDERAL CORPORATION**
 **CONSOLIDATED
        STATEMENTS OF INCOME**
 **(Dollars
        in Thousands, Except Share Information)**
 **(unaudited)**
 Three
                    months ended March 31,2007
                
                2006Interest
                    and dividend incomeLoans,
                    including fees
                
                $
                11,052
                
                $
                9,407Securities
                      and interest-earning deposits in
                      other financial institutions
                
                
                2,204
                
                
                1,108Total
                    interest and dividend income
                
                
                13,256
                
                
                10,515Interest
                    expenseDeposits
                
                
                5,820
                
                
                3,852Federal
                    Home Loan Bank advances
                
                
                1,560
                
                
                1,327Securities
                    sold under agreements to repurchase
                
                
                475
                
                
                57Total
                    interest expense
                
                
                7,855
                
                
                5,236Net
                    interest income
                
                
                5,401
                
                
                5,279Provision
                    for loan losses
                
                
                296
                
                
                76Net
                    interest income after provision for loan losses
                
                
                5,105
                
                
                5,203Noninterest
                    incomeService
                    charges and fees
                
                
                1,228
                
                
                1,342Gain
                    on sale of real estate mortgages held for sale
                
                
                10
                
                
                3Gain
                    on sale of foreclosed assets
                
                
                7
                
                
                3Loss
                    on sale of securities available for sale
                
                
                (8
                )
                
                (177
                )Commission
                    income
                
                
                74
                
                
                81Interchange
                    fees
                
                
                210
                
                
                195Bank
                    owned life insurance earnings
                
                
                211
                
                
                204Other
                
                
                33
                
                
                (13
                )1,765
                
                
                1,638Noninterest
                    expenseCompensation
                    and benefits
                
                
                3,016
                
                
                2,627Occupancy
                    and equipment
                
                
                588
                
                
                508Data
                    processing
                
                
                335
                
                
                365Advertising
                
                
                146
                
                
                216Outside
                    professional services
                
                
                631
                
                
                493Interchange
                    charges
                
                
                100
                
                
                166Collection
                    expense and repossessed asset losses
                
                
                47
                
                
                83Telephone
                
                
                113
                
                
                123Other
                
                
                759
                
                
                6535,735
                
                
                5,234Income
                    before income tax expense
                
                
                1,135
                
                
                1,607Income
                    tax expense
                
                
                361
                
                
                500Net
                    income
                
                $
                774
                
                $
                1,107Earnings
                    per common share:Basic
                
                $
                0.06
                
                $
                0.08Diluted
                
                $
                0.06
                
                $
                0.08Dividends
                    declared per common share
                
                $
                0.13
                
                $
                0.09


The
        accompanying notes are an integral part of these unaudited consolidated
        financial statements.
  3
  **ATLANTIC
        COAST FEDERAL CORPORATION**
 **CONSOLIDATED
        STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**
 **For
        the Three Months Ended March 31, 2007 and March 31, 2006**
 **(Dollars
        in Thousands, Except Share Information)**
 **(unaudited)**







**COMMON**
                **STOCK**
              
              **ADDITIONAL**
                **PAID
                  IN**
                **CAPITAL**
              
              **UNEARNED**
                **ESOP**
                **STOCK**
              
              **RETAINED**
                **EARNINGS**
              
              **ACCUMULATED**
                **OTHER**
                **COMPREHENSIVE**
                **INCOME**
              
              **TREASURY**
                **STOCK**
              
              **TOTAL**
                **EQUITY**For
                  the three months ended March 31, 2007Balance
                  at January 1, 2007
              
              $
              148
              
              $
              57,708
              
              $
              (3,259
              )
              $
              52,297
              
              $
              210
              
              $
              (16,017
              )
              $
              91,087ESOP
                  shares earned, 11,638 shares
              
              
              
              
              
              95
              
              
              117
              
              
              
              
              
              
              
              
              
              
              
              212Stock
                  options exercised
              
              
              
              
              
              (6
              )
              
              
              
              
              
              
              
              
              
              
              52
              
              
              46Management
                  restricted stock expense
              
              
              
              
              
              167
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              167Stock
                  options expense
              
              
              
              
              
              179
              
              
              
              
              
              
              
              
              
              
              
              (97
              )
              
              82Dividends
                  declared ( $.13 per share)
              
              
              
              
              
              
              
              
              
              
              
              (601
              )
              
              
              
              
              
              
              
              (601
              )Director's
                  deferred compensation
              
              
              
              
              
              18
              
              
              
              
              
              
              
              
              
              
              
              (18
              )
              
              -Treasury
                  stock purchased at cost, 105,838 shares
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,967
              )
              
              (1,967
              )Comprehensive
                  income:Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              774
              
              
              
              
              
              
              
              
              774Other
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              151
              
              
              
              
              
              151Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              925Balance
                  at March 31, 2007
              
              $
              148
              
              $
              58,161
              
              $
              (3,142
              )
              $
              52,470
              
              $
              361
              
              $
              (18,047
              )
              $
              89,951For
                  the three months ended March 31, 2006Balance
                  at January 1, 2006
              
              $
              148
              
              $
              56,876
              
              $
              (3,724
              )
              $
              49,193
              
              $
              26
              
              
              ($9,603
              )
              $
              92,916ESOP
                  shares earned, 11,638 shares
              
              
              
              
              
              53
              
              
              116
              
              
              
              
              
              
              
              
              
              
              
              169Management
                  restricted stock expense
              
              
              
              
              
              145
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              145Stock
                  options expense
              
              
              
              
              
              76
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              76Dividend
                  declared ($.09 per share)
              
              
              
              
              
              
              
              
              
              
              
              (458
              )
              
              
              
              
              
              
              
              (458
              )Comprehensive
                  income:Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              1,107
              
              
              
              
              
              
              
              
              1,107Other
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              83
              
              
              
              
              
              83Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,190Balance
                  at March 31, 2006
              
              $
              148
              
              $
              57,150
              
              $
              (3,608
              )
              $
              49,842
              
              $
              109
              
              $
              (9,603
              )
              $
              94,038
 The
          accompanying notes are an integral part of these unaudited consolidated
          financial statements.
  4
  **ATLANTIC
          COAST FEDERAL CORPORATION**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
 **(Dollars
          in Thousands)**
 **(unaudited)**
 
 Three
                    months ended March 31,2007
                
                2006Cash
                    flows from operating activitiesNet
                    income
                
                $
                774
                
                $
                1,107Adjustments
                      to reconcile net income to net
                      cash from operating activities:Provision
                    for loan losses
                
                
                296
                
                
                76Gain
                    on sale of real estate mortgages held for sale
                
                
                (10
                )
                
                (3
                )Loans
                    originated for sale
                
                
                (28,932
                )
                
                (235
                )Proceeds
                    from loan sales
                
                
                24,915
                
                
                283Gain
                    on sale of other real estate owned
                
                
                (7
                )
                
                (3
                )Loss
                      on sale of securities available
                      for sale
                
                
                8
                
                
                177Loss
                    on disposal of equipment
                
                
                117
                
                
                30ESOP
                    compensation expense
                
                
                212
                
                
                169Share-based
                    compensation expense
                
                
                249
                
                
                221Net
                    depreciation and amortization
                
                
                401
                
                
                487Net
                    change in accrued interest receivable
                
                
                (120
                )
                
                (282
                )Increase
                    in cash surrender value of bank owned life insurance
                
                
                (211
                )
                
                (204
                )Net
                    change in other assets
                
                
                74
                
                
                (156
                )Net
                      change in accrued expenses and
                      other liabilities
                
                
                585
                
                
                (286
                )Net
                    cash from operating activites
                
                
                (1,649
                )
                
                1,381Cash
                    flows from investing activitiesProceeds
                      from maturities and payments of
                      securites available for sale
                
                
                4,321
                
                
                4,606Proceeds
                      from the sales of securities available
                      for sale
                
                
                5,681
                
                
                -Purchase
                    of securities available for sale
                
                
                (39,964
                )
                
                (2,059
                )Loans
                    purchased
                
                
                (3,138
                )
                
                (7,782
                )Net
                    change in loans
                
                
                (483
                )
                
                (11,421
                )Expenditures
                    on premises and equipment
                
                
                (250
                )
                
                (526
                )Proceeds
                    from the sale of other real estate owned
                
                
                119
                
                
                277Purchase
                    of FHLB stock
                
                
                (40
                )
                
                (228
                )Net
                    change in other investments
                
                
                500
                
                
                -Net
                    cash from investing activities
                
                
                (33,254
                )
                
                (17,133
                )


(Continued)




5





**ATLANTIC
      COAST FEDERAL CORPORATION**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Dollars
      in Thousands)**


**(unaudited)**







Three
                  months ended March 31,2007
              
              2006Cash
                  flows from financing activitiesNet
                  increase in deposits
              
              $
              21,149
              
              $
              13,792FHLB
                  advances
              
              
              10,000
              
              
              -Proceeds
                    from sale of securities under
                    agreements to repurchase
              
              
              24,500
              
              
              12,000Repayment
                  of FHLB advances
              
              
              (12,000
              )
              
              -Proceeds
                  from exercise of stock options
              
              
              46
              
              
              -Treasury
                  stock repurchased
              
              
              (1,967
              )
              
              -Dividends
                  paid
              
              
              (568
              )
              
              (414
              )Net
                  cash from financing activities
              
              
              41,160
              
              
              25,378Net
                  change in cash and cash equivalents
              
              
              6,257
              
              
              9,626Cash
                  and equivalents beginning of period
              
              
              41,057
              
              
              37,959Cash
                  and equivalents at end of period
              
              $
              47,314
              
              $
              47,585Supplemental
                  information:Interest
                  paid
              
              $
              7,784
              
              $
              5,161Income
                  taxes paid
              
              
              50
              
              
              765Supplemental
                  noncash disclosures:Loans
                  transferred to other real estate
              
              $
              758
              
              $
              96




The
      accompanying notes are an integral part of these
      unaudited consolidated financial statements.




6


**ATLANTIC
        COAST FEDERAL CORPORATION**
 **CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(Unaudited)**





**NOTE
      1. BASIS OF PRESENTATION**





The
      accompanying unaudited consolidated financial statements include Atlantic Coast
      Federal Corporation (or the “Company”) and its wholly owned subsidiary, Atlantic
      Coast Bank (the “Bank”), which was formerly known as Atlantic Coast Federal. The
      Company changed the name of the Bank on July 17, 2006 to better reflect the
      nature of the Bank’s operations. Also included in the unaudited consolidated
      financial statements is Atlantic Coast Holdings, Inc. (“Holdings”) a wholly
      owned subsidiary of the Bank, which manages and invests in certain securities,
      and owns 100% of the common stock and 85% of the Preferred Stock of Coastal
      Properties, Inc., a real estate investment trust (the “REIT”). All significant
      inter-company balances and transactions have been eliminated in consolidation.
      The principal activity of the Company is the ownership of the Bank, as such,
      the
      terms “Company” and “Bank” may be used interchangeably throughout this Form
      10-Q.





The
      unaudited consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America
      for interim financial information and with instructions for Form 10-Q.
      Accordingly, they do not include all of the information and footnotes required
      by accounting principles generally accepted in the United States of America
      for
      complete financial statements. In the opinion of management, all adjustments
      (all of which are normal and recurring in nature) considered necessary for
      a
      fair presentation have been included. Operating results for the three month
      period ended March 31, 2007 are not necessarily indicative of the results that
      may be expected for the year ending December 31, 2007. The 2006 Atlantic
      Coast Federal Corporation consolidated financial statements, as presented in
      the
      Company’s Form 10-K, should be read in conjunction with these statements.





Certain
      items in the March 31, 2006 Form 10-Q were reclassified to conform to the
      current presentation.





**NOTE
      2. USE OF ESTIMATES**





The
      preparation of consolidated 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, liabilities, and disclosure of contingent assets and liabilities at
      the
      date of the financial statements and the reported amounts of revenue and expense
      during the reported periods, as well as the disclosures provided. Actual results
      could differ from those estimates. Estimates associated with the allowance
      for
      loan losses, realization of deferred tax assets, valuation of intangible assets
      including goodwill and the fair values of securities and other financial
      instruments are particularly susceptible to material change in the near term.





**NOTE
      3. IMPACT OF CERTAIN ACCOUNTING PRONOUNCEMENTS**





In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* (“FAS
      159”), which permits companies to measure many financial instruments and certain
      other items at fair value that are not currently required to be measured at
      fair
      value. The Company is presently assessing the impact FAS 159 may have on its
      financial statements, but no determination has been made at this
      time.





The
      Company adopted the provisions of FASB Interpretation No. 48 (“FIN 48”), *Accounting
      for Uncertainty in Income Taxes-An Interpretation of FASB No.
      10* 9,
      which
      prescribes a recognition threshold and measurement attribute for a tax position
      taken or expected to be taken in a tax return, on January 1, 2007. The adoption
      of FIN 48 had no affect on the Company’s financial statements. The Company has
      no unrecognized tax benefits or liabilities and does not anticipate any increase
      in unrecognized benefits or liabilities during 2007 relative to any positions
      taken prior to January 1, 2007.




7


**ATLANTIC
        COAST FEDERAL CORPORATION**
 **CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(Unaudited)**


**NOTE
      3. IMPACT OF CERTAIN ACCOUNTING PRONOUNCEMENTS (Continued)**





It
      is the
      Company’s policy to recognize interest and penalties accrued relative to
      unrecognized tax benefits
      in their respective federal or state income tax expense accounts. The Company
      had no amounts accrued as of January 1, 2007. The Company and its subsidiaries
      file U.S. Corporation federal income tax returns and Georgia and Florida
      Corporation income tax returns. These returns are subject to examination by
      taxing authorities for all years after 2002.





In
      September 2006, the FASB issued SFAS No. 157, *Fair
      Value Measurements* (“FAS
      157”), which addresses how companies should measure fair value when they are
      required to use a fair value measure for recognition or disclosure purposes
      under generally accepted accounting principles (“GAAP”). FAS 157, which is
      effective for fiscal years beginning after November 15, 2007, does not require
      new fair value measurements, however it does establish a common definition
      of
      fair value and expands disclosures about fair value measurements. The Company
      is
      presently assessing the impact FAS 157 may have on its financial statements,
      but
      no determination has been made at this time.





**NOTE
      4. AVAILABLE FOR SALE SECURITIES**





The
      Company evaluates securities for other-than-temporary impairment, at least
      on a
      quarterly basis, and more frequently when economic or market concerns warrant
      such evaluation. Consideration is given to the length of time and the extent
      to
      which the fair value has been below cost, the financial condition and near-term
      prospects of the issuer, and 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. In analyzing an issuer's financial
      condition, the Company may consider whether the securities are issued by the
      federal government or one of its agencies, whether downgrades by bond rating
      agencies have occurred, and the results of reviews of the issuer's financial
      condition. As of March 31, 2007 net unrealized losses on available for sale
      securities were $108,000 and are largely due to the current interest rate
      environment relative to the interest rate of the securities. These unrealized
      losses are considered temporary as the fair value should return to par as the
      securities reach maturity.





**NOTE
      5. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE**





Securities
      sold under agreements to repurchase are secured by mortgage-backed securities
      with a carrying amount of $53.5 million at March 31, 2007. The Company had
      $29.0
      million of such agreements as of December 31, 2006.





Securities
      sold under agreements to repurchase are financing arrangements that mature
      within ten years. At maturity, the securities underlying the agreements are
      returned to the Company. Information
      concerning securities sold under agreements to repurchase is summarized as
      follows:


(Dollars
                  in Thousands)Average
                  daily balance
              
              $
              42,228Average
                  interest rate
              
              
              4.49
              %Maximum
                  month-end balance
              
              $
              53,500Weighted
                  average interest rate at period end
              
              
              4.50
              %




8


**ATLANTIC
        COAST FEDERAL CORPORATION**
 **CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(Unaudited)**


**NOTE
      6. DIVIDENDS**





During
      the first quarter of 2007, the Company’s board of directors declared a regular
      quarterly cash dividend at a rate of $0.13 per share. The dividend was payable
      on April 30, 2007 for stockholders of record on April 13, 2007. Atlantic Coast
      Federal, MHC (“MHC”) which holds 8,728,500 shares, or approximately 63.8% of the
      Company’s total outstanding common stock has informed the Company that it will
      waive receipt of the first quarter dividend on its owned shares, as was done
      throughout 2006.




Total
      dividends charged to retained earnings for the three months ended March 31,
      2007
      were $601,000.





**NOTE
      7. EARNINGS PER COMMON SHARE**





Basic
      earnings per common share is computed by dividing net income by the
      weighted-average number of common shares outstanding for the period, reduced
      for
      average unallocated ESOP shares and average unearned restricted stock awards.
      Diluted earnings per common share is computed by dividing net income by the
      weighted-average number of common shares outstanding for the period increased
      for the dilutive effect of unvested stock options and stock awards. The dilutive
      effect of the unvested stock options and stock awards is calculated under the
      treasury stock method utilizing the average market value of the Company’s stock
      for the period. A reconciliation of the numerator and denominator of the basic
      and diluted earnings per common share computation for the three months ended
      March 31, 2007 and 2006, is as follows:




For
                  the three months
                ended
                  March 31,2007
              
              2006BasicNet
                  income
              
              $
              774
              
              $
              1,107Weighted
                  average common shares outstanding
              
              
              13,754,774
              
              
              14,141,350Less:  
                  Average unallocated ESOP shares
              
              
              (325,864
              )
              
              (372,416
              )Average
                  unvested restricted stock awards
              
              
              (227,362
              )
              
              (258,469
              )Average
                  Shares
              
              
              13,201,548
              
              
              13,510,465Basic
                  earnings per common share
              
              $
              0.06
              
              $
              0.08DilutedNet
                  Income
              
              $
              774
              
              $
              1,107Weighted
                    average common shares outstanding per
                    common share
              
              
              13,201,548
              
              
              13,510,465Add:  
                  Dilutive effects of assumed exercise of stock options
              
              
              67,125
              
              
              -Dilutive
                  effects of full vesting of stock awards
              
              
              98,278
              
              
              20,563Average
                  shares and dilutive potential common shares
              
              
              13,366,951
              
              
              13,531,028Diluted
                  earnings per common share
              
              $
              0.06
              
              $
              0.08




Stock
      options for 8,263 and 534,400 shares of common stock were not considered in
      computing diluted earnings per common share for the three months ended March
      31,
      2007 and 2006, respectively, because they were anti-dilutive.




9


**ATLANTIC
        COAST FEDERAL CORPORATION**
 **CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **March
        31, 2007**
 **(Unaudited)**


**NOTE
      8. OTHER COMPREHENSIVE INCOME**





Comprehensive
      income components and related taxes for the three months ended March 31, 2007
      and 2006 were as follows:




2007
            
            2006Unrealized
                holding gains (losses) onsecurities
                available for sale
            
            $
            231
            
            $
            (318
            )Less
                reclassification adjustments for (gains)
                losses recognized in income
            
            
            8
            
            
            177Net
                unrealized gains (losses)
            
            
            223
            
            
            (141
            )Tax
                effect
            
            
            (83
            )
            
            51Net-of-tax
                amount
            
            
            140
            
            
            (90
            )Change
                in fair value of derivatives used forcash
                flow hedges
            
            
            17
            
            
            279Net
                unrealized gains
            
            
            17
            
            
            279Tax
              effect
            
            
            (6
            )
            
            (106
            )Net-of-tax
                amount
            
            
            11
            
            
            173Other
                comprehensive income
            
            $
            151
            
            $
            83




**Note
      9. SUBSEQUENT EVENT**





On
      May 7,
      2007, the Boards of Directors of the MHC, the Company and the Bank adopted
      a
      Plan of Conversion and Reorganization pursuant to which the MHC will convert
      from the mutual holding company form of organization into the stock holding
      company form of organization. The Plan of Conversion and Reorganization involves
      the formation of a newly organized Maryland corporation to become the holding
      company for the Bank. Pursuant to the Plan of Conversion and Reorganization,
      the
      new holding company will offer for sale shares of its common stock representing
      the MHC’s interest in the Company to the Bank’s depositors, members of the
      community and general public, current stockholders of the Company and the
      Company’s employee stock ownership plan. The Plan of Conversion and
      Reorganization further provides for the exchange of shares of the Company for
      shares of the new holding company designed to preserve the percentage ownership
      interests of such persons. The conversion is subject to approval by the Office
      of Thrift Supervision and the members of the MHC and stockholders of the
      Company. The conversion and offering are expected to be completed early in
      the
      fourth quarter of 2007.




10




**ATLANTIC
      COAST FEDERAL CORPORATION**





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





**Forward-Looking
      Statements**




*This
      Form 10-Q contains forward-looking statements that are statements that are
      not
      historical or current facts. When used in this filing and in future filings
      by
      Atlantic Coast Federal Corporation with the Securities and Exchange Commission,
      in Atlantic Coast Federal Corporation’s press releases or other public or
      shareholder communications, or in oral statements made with the approval of
      an
      authorized executive officer, the words or phrases, “anticipate,” “would be,”
“will allow,” “intends to,” “will likely result,” “are expected to,” will
      continue,” “is anticipated,” “estimated,” “projected,” or similar expressions
      are intended to identify, “forward looking statements.” Such statements are
      subject to risks and uncertainties, including but not limited to changes in
      economic conditions in Atlantic Coast Federal Corporation’s market area, changes
      in policies by regulatory agencies, fluctuations in interest rates, demand
      for
      loans in Atlantic Coast Federal Corporation’s market area, changes in the
      position of banking regulators on the adequacy of our allowance for loan losses,
      and competition, all or some of which could cause actual results to differ
      materially from historical earnings and those presently anticipated or
      projected.*




*Atlantic
      Coast Federal Corporation wishes to caution readers not to place undue reliance
      on any such forward-looking statements, which speak only as of the date made,
      and advise readers that various factors, including regional and national
      economic conditions, substantial changes in levels of market interest rates,
      credit and other risks of lending and investing activities, and competitive
      and
      regulatory factors, could affect Atlantic Coast Federal Corporation’s financial
      performance and could cause Atlantic Coast Federal Corporation’s actual results
      for future periods to differ materially from those anticipated or
      projected.*




*Atlantic
      Coast Federal Corporation does not undertake, and specifically disclaims any
      obligation, to update any forward-looking statements to reflect occurrences
      or
      unanticipated events or circumstances after the date of such
      statements.*




**Critical
      Accounting Policies**





Certain
      accounting policies are important to the portrayal of the Company’s financial
      condition, since they require management to make difficult, complex or
      subjective judgments, some of which may relate to matters that are inherently
      uncertain. Estimates associated with these policies are susceptible to material
      changes as a result of changes in facts and circumstances, including, but
      without limitation, changes in interest rates, performance of the economy,
      financial condition of borrowers and laws and regulations. Management believes
      that its critical accounting policies include determining the allowance for
      loan
      losses, determining the fair value of securities, accounting for deferred income
      taxes, and the valuation of goodwill. Atlantic Coast Federal Corporation’s
      accounting policies are discussed in detail in Note 1 of the Notes to
      Consolidated Financial Statements included in Item 8 of our Annual Report on
      Form 10-K filed with the Securities and Exchange Commission.





The
      allowance for loan losses is a valuation allowance for probable incurred credit
      losses, increased by the provision for loan losses and decreased by charge-offs
      less recoveries. Management estimates the allowance balance required by
      considering the past loan loss experience, the nature and volume of the
      portfolio, information about specific borrower situations and estimated value
      of
      any underlying collateral, whether the loan was originated through the Bank’s
      retail network or through a broker, economic conditions and other factors.
      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. Loan losses are charged against the allowance when management
      believes the uncollectibility of a loan balance is confirmed.




11




The
      allowance consists of specific and general components. The specific component
      relates to loans that are individually evaluated and determined to be impaired.
      Loans individually evaluated are generally large balance and/or complex loans,
      such as multi-family and commercial real estate loans. This evaluation is often
      based on significant estimates and assumptions due to the level of subjectivity
      and judgment necessary to account for highly uncertain matters or the
      susceptibility of such matters to change. The general component relates to
      large
      groups of small balance homogeneous loans that are evaluated in the aggregate
      based on historical loss experience adjusted for current factors.





Management
      believes that the allowance for loan losses and related provision expense are
      particularly susceptible to material change in the near term as a result of
      significant changes in individual borrower circumstances on larger balance
      loans. The allowance for loan losses was $4.9 million at March 31, 2007, and
      $4.5 million at March 31, 2006. The provision for loan loss expense was $296,000
      for the three months ended March 31, 2007, and $76,000 for the same period
      in
      2006. The lower provision for loan losses in the first quarter of 2006 reflected
      an improvement in asset quality resulting from the collection of a large
      commercial loan previously classified as impaired and the reversal of the
      associated reserve, along with the positive impact of credit improvements on
      several other loans. Management believes the current-year provision for loan
      losses is more indicative of a normalized level based on the overall credit
      quality of the portfolio at the end of the first quarter of 2007.





Securities
      available for sale are carried at fair value, with unrealized holding gains
      and
      losses reported separately in accumulated other comprehensive income (loss),
      net
      of tax. On a monthly basis, the Company adjusts the carrying value of the
      securities to fair value based on third-party market quotes. Other comprehensive
      income (loss) resulting from changes in the fair market value of Atlantic Coast
      Federal Corporation’s available for sale securities portfolio totaled $140,000
      and $(90,000) for the three months ended March 31, 2007 and 2006, respectively.
      Additionally, securities available for sale are required to be written down
      to
      fair value when a decline in fair value is not temporary; therefore, future
      changes in the fair value of securities could have a significant impact on
      Atlantic Coast Federal Corporation’s operating results. In determining whether a
      market value decline is other than temporary, management considers the reason
      for the decline, the extent of the decline and the duration of the
      decline.





The
      Bank
      assesses the carrying value of goodwill at least annually in order to determine
      if it is impaired. In reviewing the carrying value of goodwill, management
      assesses the recoverability of such assets by evaluating the fair value of
      the
      Company’s community banking segment, which is the Bank’s only business segment.
      Any impairment would be required to be recorded during the period identified.
      The Bank’s goodwill totaled $2.7 million as of March 31, 2007; therefore, if
      goodwill was determined to be impaired, the financial results could be
      materially impacted.





After
      converting to a federally chartered savings association, Atlantic Coast Bank
      became a taxable organization. Income tax expense is the total of the current
      year income tax due or refundable and the change in deferred tax assets and
      liabilities. Deferred tax assets and liabilities are the expected future tax
      amounts for the temporary difference between carrying amounts and tax basis
      of
      assets and liabilities, computed using enacted tax rates. A valuation allowance,
      if needed, reduces deferred tax assets to the amount expected to be realized.
      The Internal Revenue Code and applicable regulations are subject to
      interpretation with respect to the determination of the tax basis of assets
      and
      liabilities for credit unions that convert charters and become a taxable
      organization. Since Atlantic Coast Bank’s transition to a federally chartered
      thrift, Atlantic Coast Federal Corporation has recorded income tax expense
      based
      upon management’s interpretation of the applicable tax regulations. Positions
      taken by the Company in preparing our federal and state tax returns are subject
      to the review of taxing authorities, and the review by taxing authorities of
      the
      positions taken by management could result in a material adjustment to the
      financial statements.





12


**Comparison
      of Financial Condition at March 31, 2007 and December 31,
      2006**





**General.** Balance
      sheet growth at March 31, 2007 as compared to December 31, 2006 projects an
      annualized asset growth rate of approximately 20%. Deposit growth outpaced
      loan
      growth as the Bank continues to offer competitive rates within its geographic
      market. While slower than in previous quarters, organic loan growth was steady
      during the latter half of the first quarter, however, higher prepayment activity
      resulted in relatively flat loan growth overall. As a result, the Bank was
      able
      to fund its loan growth internally, while continuing to leverage its borrowings
      to increase investment securities.





Following
      is a summarized comparative balance sheet as of March 31, 2007 and December
      31,
      2006:


March
                    31,
                
                December
                    31,
                
                Increase
                    (decrease)2007
                
                2006
                
                Dollars
                
                PercentageAssets
                
                (Dollars
                    in Thousands)Cash
                    and cash equivalents
                
                $
                47,314
                
                $
                41,057
                
                $
                6,257
                
                
                15.2
                %Other
                    interest earning investments
                
                
                700
                
                
                1,200
                
                
                (500
                )
                
                -41.7
                %Securitites
                    available for sale
                
                
                129,402
                
                
                99,231
                
                
                30,171
                
                
                30.4
                %Loans
                
                
                646,921
                
                
                644,222
                
                
                2,699
                
                
                0.4
                %Allowance
                    for loan losses
                
                
                (4,853
                )
                
                (4,705
                )
                
                (148
                )
                
                3.1
                %Loans,
                    net
                
                
                642,068
                
                
                639,517
                
                
                2,551
                
                
                0.4
                %Loans
                    held for sale
                
                
                8,392
                
                
                4,365
                
                
                4,027
                
                
                92.3
                %Other
                    assets
                
                
                58,080
                
                
                57,455
                
                
                625
                
                
                1.1
                %Total
                    assets
                
                $
                885,956
                
                $
                842,825
                
                $
                43,131
                
                
                5.1
                %Liabilities
                    and Stockholders' equityDepositsNon-interest
                    bearing
                
                $
                43,002
                
                $
                38,301
                
                $
                4,701
                
                
                12.3
                %Interest
                    bearing transaction accounts
                
                
                53,883
                
                
                52,895
                
                
                988
                
                
                1.9
                %Savings
                    and money market
                
                
                189,406
                
                
                158,229
                
                
                31,177
                
                
                19.7
                %Time
                
                
                307,910
                
                
                323,627
                
                
                (15,717
                )
                
                -4.9
                %Total
                    deposits
                
                
                594,201
                
                
                573,052
                
                
                21,149
                
                
                3.7
                %Federal
                    Home Loan Bank advances
                
                
                142,000
                
                
                144,000
                
                
                (2,000
                )
                
                -1.4
                %Securities
                    sold under agreements to repurchase
                
                
                53,500
                
                
                29,000
                
                
                24,500
                
                
                84.5
                %Accrued
                    expenses and other liabilities
                
                
                6,304
                
                
                5,686
                
                
                618
                
                
                10.9
                %Total
                    liabilities
                
                
                796,005
                
                
                751,738
                
                
                44,267
                
                
                5.9
                %Stockholders'
                    equity
                
                
                89,951
                
                
                91,087
                
                
                (1,136
                )
                
                -1.2
                %Total
                    liabilities and stockholders' equity
                
                $
                885,956
                
                $
                842,825
                
                $
                43,131
                
                
                5.1
                %


**Cash
      and cash equivalents** .
      Cash
      and cash equivalents are comprised of cash-on-hand and interest earning and
      non-interest earning balances held in other depository institutions. We expect
      the balances we maintain in cash and cash equivalents will fluctuate as our
      other interest earning assets mature, or we identify opportunities for
      longer-term investments that fit the Company’s growth strategy. Late in the
      first quarter of 2007, the Company borrowed $10.0 million as part of its ongoing
      asset/liability management efforts to reduce interest rate sensitivity. Those
      funds were not fully deployed at March 31, 2007, and as a result $6.3 million
      was invested in cash and cash equivalents.





**Securities
      available for sale** .
      Securities available for sale is composed principally of debt securities of
      U.S.
      Government-sponsored organizations, or mortgage-backed securities. In the
      near-term we expect the composition of our investment in securities available
      for sale to continue to be heavily weighted in mortgage-backed securities and
      the debt of government-sponsored organizations. During the three months ended
      March 31, 2007, the Company purchased $40.0 million of investment securities,
      increasing the investment balance by approximately $30.0 million to $129.4
      million, net of maturities and sales of $10.0 million at March 31, 2007.




13




**Loans** .
      Following is a comparative composition of net loans as of March 31, 2007 and
      December 31, 2006:




March
                  31, 2007
              
              %
                  of total loans
              
              December
                  31, 2006
              
              %
                  of total loansReal
                  estate loans:
              
              (Dollars
                  In Thousands)One-to-four
                  family
              
              $
              336,649
              
              
              52.3
              %
              $
              334,000
              
              
              52.2
              %Commercial
              
              
              64,872
              
              
              10.1
              %
              
              60,912
              
              
              9.5
              %Other
                  ( Land & Multifamily)
              
              
              33,869
              
              
              5.3
              %
              
              34,446
              
              
              5.4
              %Total
                  real estate loans
              
              
              435,390
              
              
              67.7
              %
              
              429,358
              
              
              67.1
              %Real
                  estate construction loans:Construction-one-to-four
                  family
              
              
              25,559
              
              
              4.0
              %
              
              32,467
              
              
              5.1
              %Construction-commercial
              
              
              4,478
              
              
              0.7
              %
              
              2,862
              
              
              0.4
              %Acquisition
                  & Development
              
              
              3,425
              
              
              0.5
              %
              
              2,103
              
              
              0.3
              %Total
                  real estate construction loans
              
              
              33,462
              
              
              5.2
              %
              
              37,432
              
              
              5.8
              %Other
                  loans:Home
                  equity
              
              
              96,201
              
              
              15.0
              %
              
              91,062
              
              
              14.2
              %Consumer
              
              
              65,269
              
              
              10.1
              %
              
              63,630
              
              
              9.9
              %Commercial
              
              
              12,771
              
              
              2.0
              %
              
              19,044
              
              
              3.0
              %Total
                  other loans
              
              
              174,241
              
              
              27.1
              %
              
              173,736
              
              
              27.1
              %Total
                  loans
              
              
              643,093
              
              
              100
              %
              
              640,526
              
              
              100
              %Allowance
                  for loan losses
              
              
              (4,853
              )
              
              
              
              
              (4,705
              )Net
                  deferred loan costs
              
              
              3,518
              
              
              
              
              
              3,348Premiums
                  on purchased loans
              
              
              310
              
              
              
              
              
              348Loans,
                  net
              
              $
              642,068
              
              
              
              
              $
              639,517


The
      composition of our net loan portfolio is heavily weighted in loans secured
      by
      first mortgages, home equity loans, or second mortgages, all secured by one-
      to
      four-family residences, with approximately 67% of our loans invested in those
      types of loans at March 31, 2007, and 66% at December 31, 2006. As of March
      31, 2007 our one- to four-family residential mortgages, as a percentage of
      total
      loans, was virtually flat compared to the year-end 2006 balance, with new loan
      production nearly offset by run-off of existing loans. As a result of the
      inverted yield curve, which has continued to put pressure on net interest margin
      due to the tightening of the spread between long-term mortgage loan rates and
      the company’s short-term cost of funds, the Company modified its marketing
      strategy to reduce emphasis on this category of loans in an effort to manage
      growth. Additionally, growth has been negatively impacted by a slowing in
      residential real estate sales activity in the Bank’s markets. Recent reports by
      state and national real estate organizations have reported substantial declines
      in residential real estate activity in the Northeast Florida markets, as well
      as
      in Florida in general. As a result of these factors, management believes that
      growth in one- to four-family residential mortgages will be slow to moderate
      in
      the near term. Thus far in 2007, the Company purchased $3.1 million of
      variable-rate one- to four-family residential loans, to supplement our organic
      loan originations. Depending on liquidity, earning needs, and the availability
      of high quality loans, management expects to continue to purchase adjustable
      rate one- to four-family residential mortgage loans to supplement our internal
      loan originations.





Total
      loan production of $45.9 million during the three months ended March 31, 2007
      was derived from a diversified array of loan products including first mortgages,
      consumer, home equity, commercial, construction and other loans. The interest
      rate terms for most of these loan products are indexed to various indices,
      including the current prime rate and, as such, tend to have more favorable
      interest margins as compared to our cost of funds. Given the current interest
      rate environment the Company expects to continue in the near term to focus
      its
      lending efforts on floating rate loan products.




14




**Allowance
      for loan losse** s.
      Our
      allowance for loan losses was 0.75% and 0.73% of total loans outstanding at
      March 31, 2007 and December 31, 2006, respectively. Allowance for loan losses
      activity for the three months ended March 31, 2007 and 2006 was as follows:




At
                  March 31,
              
              At
                  March 31,2007
              
              2006(Dollars
                  in Thousands)Beginning
                  balance
              
              $
              4,705
              
              $
              4,587Loans
                  charged-off
              
              
              (424
              )
              
              (373
              )Recoveries
              
              
              276
              
              
              218Net
                  charge-offs
              
              
              (148
              )
              
              (155
              )Provision
                  for loan losses
              
              
              296
              
              
              76Ending
                  balance
              
              $
              4,853
              
              $
              4,508




The
      allowance for loan losses consists of general allowance allocations made for
      pools of homogeneous loans and specific allocations on individual loans for
      which management has significant concerns regarding the borrowers’ ability to
      repay the loans in accordance with the terms of the loans. Non-performing loans
      totaled $3.4 million and $3.1 million at March 31, 2007, and December 31,
      2006, respectively, and total impaired loans decreased to $1.9 million at March
      31, 2007 from $2.0 million at December 31, 2006. The total allowance allocated
      for impaired loans was $550,000 at March 31, 2007 and $500,000 as of December
      31, 2006. As of March 31, 2007, and December 31, 2006, all non-performing
      loans were classified as non-accrual, and we did not have any restructured
      loans
      or loans 90 days past due and accruing interest as of March 31, 2007, and
      December 31, 2006. Non-performing loans, excluding small balance homogeneous
      loans, were $1.1 million at both March 31, 2007 and December 31, 2006, and
      all
      such non-performing loans were also reported as impaired loans.




**Deposits** .
      Savings
      and money market deposit account balances increased at March 31, 2007 from
      December 31, 2006 due primarily to a carryover into 2007 of the attractive
      pricing being offered on the Company’s money market accounts. The Company
      increased deposit rates in 2006 in response to competition within its market,
      to
      both protect and grow deposit balances and fund loan growth.




**Securities
      sold under agreements to repurchase.** Historically, the Company has only utilized advances from the Federal Home
      Loan
      Bank of Atlanta (“FHLB”) or broker originated certificates of deposit as an
      alternative to organic deposits for funding its lending and investment
      activities. While we expect FHLB advances to continue to be a significant source
      of funds in the future, during 2006, the Company initiated its first financing
      arrangement involving the sale of securities under an agreement to repurchase
      to
      take advantage of favorable interest rates relative to deposits with comparable
      maturities.




Securities
      sold under agreements to repurchase are secured by mortgage-backed securities
      with a carrying amount of $53.5 million at March 31, 2007. The agreements carry
      various periods of fixed interest rates that convert to callable floating rates
      in the future. Upon conversion, each agreement may be terminated in whole by
      the
      lender each following quarter. At maturity or termination, the securities
      underlying the agreements will be returned to the Company. As of March 31,
      2007,
      the weighted average rate of the agreements was 4.49%.




15




Depending
      on the availability of suitable securities and the prevailing interest rates
      and
      terms of alternative source of funds, the Company may continue to sell
      securities under agreements to repurchase in the future.





**Federal
      Home Loan Bank advances** .
      FHLB
      advances had a weighted-average maturity of 69 months and a weighted- average
      rate of 4.35% at March 31, 2007. The decrease in FHLB borrowings at March 31,
      2007 as compared to December 31, 2006 is due to the maturity of $12.0 million
      of
      advances and additional borrowings of $10.0 million. The Company expects to
      continue to utilize FHLB advances to manage short and long- term liquidity
      needs
      to the extent it has borrowing capacity, needs funding and the interest cost
      of
      FHLB advances is attractive compared to deposits and other alternative source
      of
      funds.





**Stockholders’
      equity** .
      Stockholders’ equity decreased to approximately $90.0 million at March 31, 2007
      from $91.1 million at December 31, 2006 primarily because of the payment of
      cash
      dividends and share repurchases. In March 2007, the Company’s board of directors
      declared a regular quarterly cash dividend at a rate of $0.13 per share. The
      dividend was payable on April 30, 2007, for stockholders of record on April
      13,
      2007. Atlantic Coast Federal, MHC which holds 8,728,500 shares, or 63.8% of
      the
      Company’s total outstanding stock, has informed the Company that it will waive
      receipt of the first quarter dividend on its owned shares. Total dividends
      for
      the three months ended March 31, 2007 charged to stockholders’ equity was
      approximately $601,000, and approximately $1.1 million of dividend payments
      were
      waived by the MHC. We expect the MHC to waive receipt of payment on future
      dividends for its owned shares.




In
      September 2006 the Company’s Board of Directors approved a new repurchase plan
      to permit the Company to purchase, over a 12-month period, up to 10%, or 478,000
      shares of its outstanding common stock. Since the approval of the new stock
      repurchase plan the Company repurchased approximately 295,000 shares at an
      average price of $18.16 per share, including approximately 106,000 shares
      repurchased at an average price of $18.59 during the three months ended March
      31, 2007. As of March 31, 2007 approximately 182,000 shares of common stock
      remained to be repurchased under this plan although no assurances can be made
      regarding the number of shares, if any, that will actually be purchased, or
      the
      price that will be paid for such shares.





The
      equity to assets ratio decreased to 10.15% at March 31, 2007, from 10.81% at
      December 31, 2006. The decrease was primarily due to common stock repurchased
      under the Company’s stock repurchase plan and the rate of asset growth through
      March 31, 2007. Despite this decrease, we continued to be well in excess of
      all
      minimum regulatory capital requirements, and are considered “well capitalized”
under those formulas. Total risk-based capital to risk-weighted assets was
      12.6%, Tier 1 capital to risk-weighted assets was 11.8%, and Tier 1 capital
      to total adjusted total assets was 8.2% at March 31, 2007. These ratios as
      of
      December 31, 2006 were 13.9%, 13.1% and 9.2%, respectively.





**Comparison
      of Results of Operations for the Three Months Ended March 31, 2007 and
      2006** .





**General** . **** Our
      net
      income for the three months ended March 31, 2007, was $774,000, which was a
      decrease of $333,000 from $1.1 million for the same period in 2006 primarily
      due
      to an increase in the provision for loan losses together with higher
      non-interest expenses. Net interest income increased 2.3%, or $122,000 in the
      first quarter of 2007, compared to the same quarter in 2006, due primarily
      to
      the growth in interest-earning assets and to a lesser extent higher interest
      rates, which slightly outpaced the growth in interest-bearing liabilities and
      the associated cost of funds. Non-interest income for the three months ended
      March 31, 2007 increased by 7.8%, or $127,000, to $1.8 million as compared
      to
      $1.6 million for the same three months in 2006, due primarily to lower net
      loss
      on available for sale securities. Non-interest expense grew $501,000, or 9.6%,
      to $5.7 million for the quarter ended March 31, 2007, from $5.2 million for
      the
      same quarter in 2006 due to increased compensation and benefit costs and other
      non-interest costs.





16




**Average
      Balances, Net Interest Income, Yields Earned and Rates Paid** .
      The
      following table sets forth certain information for the three months ended March
      31, 2007 and 2006. The average yields and costs are derived by dividing income
      or expense by the average balance of assets or liabilities, respectively, for
      the periods presented.




For
                  the three months ended March 31,2007
              
              2006(Dollars
                  in Thousands)Average
                  Balance
              
              Interest
              
              Average
                  Yield /Cost
              
              Average
                  Balance
              
              Interest
              
              Average
                  Yield /CostINTEREST-EARNING
                  ASSETSLoans
                  receivable(1)
              
              $
              639,402
              
              $
              11,052
              
              
              6.91
              %
              $
              590,299
              
              $
              9,407
              
              
              6.37
              %Securites(2)
              
              
              112,372
              
              
              1,487
              
              
              5.29
              %
              
              71,445
              
              
              737
              
              
              4.13
              %Other
                  interest-earning assets(3)
              
              
              54,064
              
              
              717
              
              
              5.30
              %
              
              31,754
              
              
              371
              
              
              4.67
              %Total
                  interest-earning assets
              
              
              805,838
              
              
              13,256
              
              
              6.57
              %
              
              693,498
              
              
              10,515
              
              
              6.07
              %Non-interest
                  earning assets
              
              
              57,288
              
              
              
              
              
              
              
              
              57,911Total
                  assets
              
              $
              863,126
              
              
              
              
              
              
              
              $
              751,409INTEREST-BEARING
                  LIABILITIESSavings
                  deposits
              
              $
              41,832
              
              $
              44
              
              
              0.42
              %
              $
              53,120
              
              $
              53
              
              
              0.40
              %Interest
                  bearing demand accounts
              
              
              51,048
              
              
              390
              
              
              3.06
              %
              
              75,433
              
              
              459
              
              
              2.43
              %Money
                  market accounts
              
              
              131,124
              
              
              1,498
              
              
              4.57
              %
              
              49,702
              
              
              384
              
              
              3.09
              %Time
                  deposits
              
              
              316,666
              
              
              3,888
              
              
              4.91
              %
              
              301,154
              
              
              2,956
              
              
              3.93
              %Federal
                  Home Loan Bank advances
              
              
              143,644
              
              
              1,560
              
              
              4.34
              %
              
              129,000
              
              
              1,327
              
              
              4.11
              %Securities
                  sold under agreements to repurchase
              
              
              42,228
              
              
              475
              
              
              4.50
              %
              
              5,034
              
              
              57
              
              
              4.53
              %Total
                  interest-bearing liabilities
              
              
              726,542
              
              
              7,855
              
              
              4.32
              %
              
              613,443
              
              
              5,236
              
              
              3.41
              %Non-interest
                  bearing liabilities
              
              
              46,162
              
              
              
              
              
              
              
              
              45,361Total
                  liabilities
              
              
              772,704
              
              
              
              
              
              
              
              
              658,804Stockholders'
                  equity
              
              
              90,422
              
              
              
              
              
              
              
              
              92,605Total
                  liabilities and stockholders' equity
              
              $
              863,126
              
              
              
              
              
              
              
              $
              751,409Net
                  interest income
              
              
              
              
              $
              5,401
              
              
              
              
              
              
              
              $
              5,279Net
                  interest spread
              
              
              
              
              
              
              
              
              2.25
              %
              
              
              
              
              
              
              
              2.66
              %Net
                  earning assets
              
              $
              79,296
              
              
              
              
              
              
              
              $
              80,055Net
                  interest margin(4)
              
              
              
              
              
              
              
              
              2.68
              %
              
              
              
              
              
              
              
              3.04
              %Average
                  interest-earning assets to average interest-bearing
                  liabilities
              
              
              
              
              
              110.91
              %
              
              
              
              
              
              
              
              113.05
              %


(1)
              Calculated
                  net of deferred loan fees and loss reserve. Nonaccrual loans included
                  as
                  loans carrying a zero yield


(2)
              Calculated
                  based on carrying value. Not full tax equivalents, as the numbers
                  would
                  not change materially from those presented in the
                  table.
 (3)
                Includes
                    Federal Home Loan Bank stock at cost and term deposits with other
                    financial institutions.


(4)
            Net interest income divided by
                average
                interest-earning assets




17


**Rate/Volume
      Analysis** .
      The
      following table presents the dollar amount of changes in interest income and
      interest expense for major components of interest-earning assets and
      interest-bearing liabilities as of and for the three months ended March 31,
      2007
      as compared to the same period in 2006. For each category of interest-earning
      assets and interest-bearing liabilities, information is provided on changes
      attributable to (1) changes in volume multiplied by the old rate; and (2)
      changes in rate, which are changes in rate multiplied by the old volume; and
      (3)
      changes not solely attributable to rate or volume have been allocated
      proportionately to the change due to volume and the change due to rate.




Increase/(Decrease)
              
              TotalDue
                  to
              
              IncreaseVolume
              
              Rate
              
              (Decrease)**INTEREST-EARNING
                  ASSETS**
              
              (Dollars
                  in Thousands)Loans
                  receivable
              
              $
              816
              
              $
              828
              
              $
              1,644Securities
              
              
              502
              
              
              249
              
              
              751Other
                  interest-earning assets
              
              
              290
              
              
              56
              
              
              346Total
                  interest-earning assets
              
              
              1,608
              
              
              1,133
              
              
              2,741**INTEREST-BEARING
                  LIABILITIES**Savings
                  deposits
              
              
              (12
              )
              
              3
              
              
              (9
              )Interest
                  bearing demand accounts
              
              
              (170
              )
              
              101
              
              
              (69
              )Money
                  market accounts
              
              
              862
              
              
              251
              
              
              1,113Time
                  deposits
              
              
              159
              
              
              774
              
              
              933Federal
                  Home Loan Bank advances
              
              
              156
              
              
              77
              
              
              233Securities
                  sold under agreements to repurchase
              
              
              419
              
              
              (1
              )
              
              418Total
                  interest-bearing liabilities
              
              
              1,414
              
              
              1,205
              
              
              2,619Net
                  interest income
              
              $
              194
              
              $
              (72
              )
              $
              122




**Interest
      income.** As
      shown
      in the table above the majority of the increase in interest income for the
      three
      months ended March 31, 2007, as compared to the same period in 2006, was
      attributed to growth in average outstanding interest-earning assets, although
      the rate on interest-earning assets also was a contributing factor. Loans
      accounted for approximately 60% of the interest income growth, or $1.6 million
      for the quarter ended March 31, 2007, as compared to the same quarter in 2006.
      The increased interest income from loans was due nearly equally to increased
      average outstanding balances and the yield earned on the loans balances as
      a
      result of growth in loans indexed to the prime rate. As discussed above in
      “Comparison of Financial Condition at March 31, 2007 and December 31, 2006 -
      Loans,” the inverted yield curve over the last 12 months and a
      softening in residential real estate sales has led the Company to increase
      its
      emphasis on floating rate interest-based loans, such as home equity lending,
      adjustable-rate first mortgages, construction loans and commercial real estate
      loans. The growth in average
      outstanding balances of home equity loans, adjustable-rate first mortgages,
      construction loans and commercial real estate loans for the three months ended
      March 31, 2007, as compared to the same period in 2006, accounted for
      approximately 49%, or $24.2 million of the total $49.1 million in average loan
      growth. During these same periods, the prime rate increased 50 basis points
      from
      7.75% to 8.25%.





The
      growth in interest income from investment securities and other interest-earning
      assets for the quarter ended March 31, 2007, as compared to the same quarter
      in
      2006 was mainly due to higher average balances in addition to increased yields
      on these assets, which have tracked upward consistent with increases to
      short-term interest rates.





Management
      expects interest income will increase as average interest-earning assets and
      interest rates on such assets increase. Growth in interest earnings assets
      is
      partly dependent on funding from deposit growth in existing markets as well
      as
      from new branches opened in the second-half of 2006. Our interest income could
      be adversely impacted by continued low interest rates on longer-term loans,
      such
      as one- to four-family residential loans and the availability of the type of
      interest-earning assets desired by the Company.




18




**Interest
      expense.** The
      increase in interest expense for the three months ended March 31, 2007, as
      compared to the same period in 2006, was partially a result of a 75 basis point
      increase in the Federal Funds rate, but more significantly due to growth in
      average outstanding balances of interest-bearing deposit accounts. In order
      to
      fund loan growth and maintain deposit market share, the Company has continued
      to
      pay attractive interest rates on its money-market accounts, interest bearing
      demand accounts and time deposits. The rate of interest expense on our FHLB
      advances remained relatively flat for the first quarter of 2007 as compared
      to
      the same quarter of 2006, as new advances have generally had longer maturities
      and, therefore, we have benefited from the inverted yield curve. The Company
      also increased utilization of securities sold under agreement to repurchase
      during the first quarter of 2007 as part of its on-going asset/liability
      strategy. Given the current rate environment, and the intense competition for
      deposits in our market, management does not expect interest rates paid on
      deposits to decline in the near term.





**Net
      interest income.** Net
      interest income increased during the three months ended March 31, 2007, as
      compared to the same period in 2006, as the growth in interest income outpaced
      the growth in interest expense. As discussed above, increases in prime rate
      based loans and overall steady growth in average outstanding balances has
      enabled the Company to increase the overall yield of the loan portfolio. In
      addition, yields on securities have increased as short-term interest rates
      have
      tracked upward. Our net interest spread, which is the difference between the
      interest yield earned on interest earning assets and the interest rate paid
      on
      interest bearing liabilities, decreased 41 basis points for the first quarter
      of
      2007 as compared to the same quarter in 2006. For the same comparative periods,
      our net interest margin, which is net interest income expressed as a percentage
      of our average interest earning assets decreased 36 basis points.





Our
      rapid
      loan growth during 2004, primarily in adjustable rate one- to four-family
      residential mortgages (ARMs), as well as the near-complete refinancing of our
      existing residential mortgage portfolio, occurred during a period of
      unprecedented low interest rates. Due to the various interest rate reset terms
      of our ARM products, increases in market interest rates do not generally result
      in immediate increases in interest rate yields. Given the delay in ARM product
      re-pricing to changes in market rates, a lending environment characterized
      by an
      inverted yield curve combined with the fact that over 40% of our loan portfolio
      is comprised of longer-term fixed rate one- to four-family residential loans,
      management believes the yield curve will continue to put pressure on net
      interest margin for the rest of 2007, but does not expect the situation to
      worsen significantly. However, management also expects interest income to grow
      as the Company continues to emphasize loan growth in home equity, construction
      and commercial loans.





**Provision
      for loan losses.** We
      establish provisions for loan losses, which are charged to operations, at a
      level required to reflect probable incurred credit losses in the loan portfolio.
      In evaluating the level of the allowance for loan losses, management considers
      historical loss experience, the types of loans and the amount of loans in the
      loan portfolio, the source of origination of those loans, adverse situations
      that may affect borrowers’ ability to repay, estimated value of any underlying
      collateral, and prevailing economic conditions. Large groups of smaller balance
      homogeneous loans, such as residential real estate, small commercial real
      estate, home equity and consumer loans, are evaluated in the aggregate using
      historical loss factors adjusted for current economic conditions, source of
      loan
      origination, and other relevant data. Larger non-homogeneous loans, such as
      commercial loans for which management has concerns about the borrowers’ ability
      to repay, are evaluated individually, and specific allowance allocations are
      provided for such loans when necessary.





Based
      on
      management’s evaluation of these factors, provisions of $296,000 and $76,000
      were made during the three months ended March 31, 2007 and 2006, respectively.
      The year-over-year change was primarily due to the resolution of a problem
      credit in the first quarter of 2006 and to a lesser extent growth in the
      Company’s loan portfolio, as well as the Company’s more cautious stance on
      residential real estate lending in its Florida markets. Net charge-offs for
      the
      quarter ended March 31, 2007, were $148,000. By comparison, net charge-offs
      for
      the same three months in 2006 were $155,000.




19




Management
      assesses the allowance for loan losses on a quarterly basis and makes provisions
      for loan losses as necessary in order to maintain the allowance for loan losses
      based on all known and inherent losses that are both probable and can be
      reasonably estimated. While management uses available information to recognize
      losses on loans, future loan loss provisions may be necessary based on changes
      in economic conditions and changes in borrower situations. In addition, various
      regulatory agencies, as an integral part of their examination process,
      periodically review the allowance for loan losses and may require us to
      recognize additional provisions based on their judgment of information available
      to them at the time of their examination. The allowance for loan losses as
      of
      March 31, 2007, is maintained at a level that represents management’s best
      estimate of probable incurred losses in the loan portfolio.





**Non-interest
      income** .
      The
      components of non-interest income for the three months ended March 31, 2007
      and
      2006 were as follows:


Increase(decrease)2007
              
              2006
              
              Dollars
              
              Percentage(Dollars
                  in Thousands)Service
                  charges and fees
              
              $
              1,228
              
              $
              1,342
              
              $
              (114
              )
              
              -8.5
              %Net
                  loss on available for sale securities
              
              
              (8
              )
              
              (177
              )
              
              169
              
              
              -95.5
              %Gain
                    on sale of real estate mortgages held
                    for sale
              
              
              10
              
              
              3
              
              
              7
              
              
              233.3
              %Gain
                  on sale of foreclosed assets
              
              
              7
              
              
              3
              
              
              4
              
              
              133.3
              %Commission
                  income
              
              
              74
              
              
              81
              
              
              (7
              )
              
              -8.6
              %Interchange
                  fees
              
              
              210
              
              
              195
              
              
              15
              
              
              7.7
              %Bank
                  owned life insurance earnings
              
              
              211
              
              
              204
              
              
              7
              
              
              3.4
              %Other
              
              
              33
              
              
              (13
              )
              
              46
              
              
              -353.8
              %$
              1,765
              
              $
              1,638
              
              $
              127
              
              
              7.8
              %




The
      increase in non-interest income, primarily as a result of lower net losses
      on
      available for sale securities, was offset by a decrease in service charges
      and
      fees. Services charges and fees, which are transactional based charges accessed
      on deposit accounts, declined primarily due to a decrease in the number of
      returned items (i.e., non-sufficient funds or “NSF”) and the associated fees
      which more than offset the continued growth in ATM and check card overdraft
      fees.





**Non-interest
      expense** .
      The
      components of non-interest expense for the three months ended March 31,
      2007 and 2006 were as follows:




Increase(decrease)2007
              
              2006
              
              Dollars
              
              Percentage(Dollars
                  in Thousands)Compensation
                  and benefits
              
              $
              3,016
              
              $
              2,627
              
              $
              389
              
              
              14.8
              %Occupancy
                  and equipment
              
              
              588
              
              
              508
              
              
              80
              
              
              15.7
              %Data
                  processing
              
              
              335
              
              
              365
              
              
              (30
              )
              
              -8.2
              %Advertising
              
              
              146
              
              
              216
              
              
              (70
              )
              
              -32.4
              %Outside
                  professional services
              
              
              631
              
              
              493
              
              
              138
              
              
              28.0
              %Interchange
                  charges
              
              
              100
              
              
              166
              
              
              (66
              )
              
              -39.8
              %Collection
                    expense and repossessed asset
                    losses
              
              
              47
              
              
              83
              
              
              (36
              )
              
              -43.4
              %Telephone
              
              
              113
              
              
              123
              
              
              (10
              )
              
              -8.1
              %Other
              
              
              759
              
              
              653
              
              
              106
              
              
              16.2
              %$
              5,735
              
              $
              5,234
              
              $
              501
              
              
              9.6
              %




20




Nearly
      62% of the increase to compensation and benefit expense for the three months
      ended March 31, 2007, as compared to the same period in 2006, was due to
      increased salaries. The increase was due primarily to organizational changes
      and
      additions to the executive management team in order to better position the
      Company for future growth, higher share-based compensation expenses driven
      by
      higher share price, additional staffing costs related to branch expansion and
      private banking associates in Florida, and annual increases. Increased occupancy
      and equipment costs for the quarter ended March 31, 2007, as compared to the
      same quarter in 2006 was primarily due to higher depreciation expense on recent
      branch expansion. The decrease to data processing costs for the three months
      ended March 31, 2007, as compared to the same period in 2006, resulted from
      a
      renegotiation of our operating system contract with our third-party provider.
      Outside and professional services cost increased as the Company incurred
      consulting fees in connection with a market analysis and segmentation study,
      business plan modeling
      and non-recurring recruiting/placement expenses during the quarter ended March
      31,
      2007.





In
      general, we expect non-interest expense will increase in future periods as
      a
      result of continued growth and expansion and the costs associated with our
      operation as a public company.





**Income
      tax expense.** Income
      tax expense decreased $139,000 to $361,000 for the three months ended March
      31,
      2007, from $500,000 for the same period in 2006. Management anticipates that income tax expense will continue to vary as income
      before income taxes varies.





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





The
      Company is subject to interest rate risk to the extent that its interest-bearing
      liabilities, primarily deposits and FHLB advances, re-price more rapidly or
      at
      different rates than its interest-earning assets. In order to minimize the
      potential for adverse effects of material prolonged increases or decreases
      in
      interest rates on our results of operations, we have adopted an asset and
      liability management policy. The Board of Directors sets the asset and liability
      policy for the Company, which is implemented by the Asset/Liability Committee
      (“Committee”).





The
      purpose of this Committee is to communicate, coordinate and control
      asset/liability management consistent with our business plan and board approved
      policies. The Committee establishes and monitors the volume and mix of assets
      and funding sources taking into account relative costs and spreads, interest
      rate sensitivity and liquidity needs. The objectives are to manage assets and
      funding sources to produce results that are consistent with liquidity, capital
      adequacy, growth, risk, and profitability goals.





The
      Committee generally meets on a quarterly basis to review, among other things,
      economic conditions and interest rate outlook, current and projected liquidity
      needs and capital position, anticipated changes in the volume and mix of assets
      and liabilities and interest rate exposure limits versus current projections
      pursuant to market value of portfolio equity analysis and income simulations.
      The Committee recommends appropriate strategy changes based on this review.
      The
      Committee is responsible for reviewing and reporting the effects of the policy
      implementations and strategies to the Board of Directors at least
      quarterly.





A
      key
      element of Atlantic Coast Federal Corporation’s asset/liability plan is to
      protect net earnings by managing the maturity or re-pricing mismatch between
      its
      interest-earning assets and rate-sensitive liabilities. Historically, the
      Company has sought to reduce exposure to its earnings through the use of
      adjustable rate loans and through the sale of certain fixed rate loans in the
      secondary market, and by extending funding maturities through the use of FHLB
      advances.





As
      part
      of its efforts to monitor and manage interest rate risk, the Company uses a
      financial modeling tool that estimates the impact of different interest rate
      scenarios on the value of the Company’s equity. This financial modeling tool is
      referred to as Economic Value of Equity (“EVE”). In essence, this tool measures
      the changes in equity due to the impact on net interest margin, over a five-year
      horizon, from instantaneous and sustained parallel shifts in the yield curve,
      in
      100 basis point increments, up and down 300 basis points. Management believes
      the use of EVE improves the visibility of the effect of current interest rate
      risk on future earnings under increasing or decreasing interest rate
      environments. Accordingly, the Company believes it is in a better position
      to be
      proactive in reducing future interest rate risk through management of the growth
      of interest-earning assets and interest-bearing liabilities within a meaningful
      time horizon. The EVE, considering the assumed changes in interest rates as
      of
      March 31, 2007, is as follows:




21


Economic
                  Value of Equity and Duration of Assets and Liabilities at March
                  31,
                  2007Change
                  in Interest RateDecrease
                3%
              
              Decrease
                2%
              
              Decrease
                1%
              
              Increase
                1%
              
              Increase
                2%
              
              Increase
                3%Duration
                  of assets(1)
              
              
              2.11
              
              
              2.11
              
              
              2.13
              
              
              2.35
              
              
              2.41
              
              
              2.41Duration
                  of liabilities(1)
              
              
              2.44
              
              
              2.44
              
              
              2.44
              
              
              2.18
              
              
              2.07
              
              
              2.07Differential
                  in duration
              
              
              -0.33
              
              
              -0.33
              
              
              -0.32
              
              
              0.17
              
              
              0.34
              
              
              0.34Amount
                  of change in EconomicValue
                  of Equity(2)
              
              $
              (8,776,566
              )
              $
              (5,851,044
              )
              $
              (2,787,360
              )
              $
              (1,484,032
              )
              $
              (5,992,220
              )
              $
              (8,988,330
              )Percentage
                  change in EconomicValue
                  of Equity(2)
              
              
              -10.70
              %
              
              -7.14
              %
              
              -3.40
              %
              
              -1.81
              %
              
              -7.31
              %
              
              -10.96
              %




(1)
            Expressed
                as number of years before asset/liability reprices to achieve stated
                rate
                of interest rate increase.


(2)
            Represents
                the cumulative five year pre-tax impact on the Company’s equity due to
                increased or (decreased) net interest margin.





In
      managing its asset/liability mix the Company, depending on the relationship
      between long and short-term interest rates, market conditions and consumer
      preference, may place somewhat greater emphasis on maximizing its net interest
      margin than on strictly matching the interest rate sensitivity of its assets
      and
      liabilities. Management believes that the increased net income which may result
      from an acceptable mismatch in the actual maturity or re-pricing of its asset
      and liability portfolios can, during periods of declining or stable interest
      rates, provide sufficient returns to justify the increased exposure to sudden
      and unexpected increases in interest rates which may result from such a
      mismatch. Management believes that Atlantic Coast Federal Corporation’s level of
      interest rate risk is acceptable under this approach.





In
      evaluating Atlantic Coast Federal Corporation’s exposure to interest rate
      movements, certain shortcomings inherent in the EVE methodology must be
      considered. For example, although certain assets and liabilities may have
      similar maturities or re-pricing periods, they may react in different degrees
      to
      changes in market interest rates. Also, the interest rates on certain types
      of
      assets and liabilities may fluctuate in advance of changes in market interest
      rates, while interest rates on other types may lag behind changes in interest
      rates. Additionally, certain assets, such as adjustable-rate mortgages, have
      features that restrict changes in interest rates on a short-term basis and
      over
      the life of the asset. Further, in the event of a significant change in interest
      rates, prepayment and early withdrawal levels would likely deviate significantly
      from those assumed in our EVE methodology. Finally, the ability of many
      borrowers to service their debt may decrease in the event of an interest rate
      increase. Atlantic Coast Federal Corporation considers all of these factors
      in
      monitoring its exposure to interest rate risk.





We
      believe that certain factors afford Atlantic Coast Federal Corporation the
      ability to operate successfully despite its exposure to interest rate risk.
      Atlantic Coast Federal Corporation manages its interest rate risk by originating
      and retaining adjustable-rate loans in its portfolio and by selling most of
      our
      currently originated fixed-rate, one- to four-family real estate loans. Also,
      to
      a limited degree, management has utilized interest rate swap agreements as
      a
      part of our asset/liability management strategy to reduce interest rate risk.
      As
      of March 31, 2007, the Company held interest rate swaps agreements classified
      as
      cash flow hedges of certain FHLB advances with notional amounts totaling $10.0
      million. The fair value of these interest rate swaps was approximately $685,000
      as of March 31, 2007. The Company also had one interest rate swap with a
      notional value of $5.0 million as of March 31, 2007, used to promote our
      asset/liability management strategy by mitigating the impact to our net interest
      margin of sudden and unplanned interest rate changes. This swap, which does
      not
      qualify for hedge accounting, had an estimated value on March 31, 2007 of
      $(18,000). Finally, Atlantic Coast Federal Corporation’s investment strategy is
      to maintain a diversified portfolio of high quality investments that balances
      the goals of minimizing interest rate and credit risks while striving to
      maximize investment return and provide the liquidity necessary to meet funding
      needs.




22




**ITEM
      4. CONTROLS AND PROCEDURES**





(a) Evaluation
      of disclosure controls and procedures .
      As of
      the end of the period covered by this Quarterly Report on Form 10-Q, the
      Registrant’s principal executive officer and principal financial officer have
      concluded that the Registrant’s disclosure controls and procedures (as defined
      in Rules 13a-15(e) or 15d-15(e) under the Securities and Exchange Act of 1934
      (the “Exchange Act”)) are effective to ensure that information required to be
      disclosed by the Company in reports that it files or submits under the Exchange
      Act is recorded, processed, summarized and reported within the time periods
      specified in SEC rules and forms.





(b) Changes
      in internal controls .
      There
      were no changes in the Registrant’s internal control over financial reporting
      (as defined in Rule 13a-15(f)) that occurred during the quarter ended March
      31,
      2007, that have materially affected, or is reasonably likely to materially
      affect, our internal control over financial reporting.





**ATLANTIC
      COAST FEDERAL CORPORATION**





**FORM
      10-Q**





**March
      31, 2007**





**Part
      II - Other Information**


Item
              1.
            Legal
                Proceedings




The
      Company is involved in various legal actions and claims arising in the normal
      course of business. In the opinion of management, these legal actions and claims
      are not expected to have a material adverse impact on the Company’s financial
      condition and results of operations.





Item
              1A.
            Risk
                Factors




There
      have been no material changes to the risk factors previously disclosed in the
      Company’s Annual Report on Form 10-K for the year ended December 31,
      2006.





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





The
      table
      below sets forth information regarding the Company’s common stock repurchase
      plans. Purchases made during March 2007 relate to the stock repurchase plan
      that
      was approved by the Company’s Board of Directors on September 1, 2006. The
      purpose of the stock repurchase plan was to replace shares issued to key
      employees and outside directors under the Company’s Recognition Plan. Stock
      repurchased under this plan will be held as Treasury shares.


Period
              
              Total
                  Number
                of
                  Shares Purchased
              
              Average
                  Price
                Paid
                  per Share
              
              Total
                  Number of
                Shares
                  Purchased
                as
                  Part of Publicly
                Announced
                  Plans
                or
                  Programs
              
              Maximum
                  Number
                of
                  Shares that May
                Yet
                  Be Purchased
                Under
                  the Plans or
                ProgramsJanuary
                  1, 2007 through January 31, 2007
              
              
              -
              
              
              -
              
              
              -
              
              
              288,484February
                  1, 2007 through February 28, 2007
              
              
              -
              
              
              -
              
              
              -
              
              
              288,484March
                  1, 2007 through March 31, 2007
              
              
              105,838
              
              
              18.59
              
              
              105,838
              
              
              182,646Total
              
              
              105,838
              
              $
              18.59
              
              
              105,838
              
              
              182,646




23




Item
              3.
            Defaults
                Upon Senior Securities





None





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




None





Item
              5.
            Other
                Information





None





Item
              6.
            Exhibits





a. Exhibits




31.1
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002


31.2
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002


32.
            Certification
                of Chief Executive Officer and Chief Financial Officer of Atlantic
                Coast
                Federal Corporation pursuant to Section
                906




24




**ATLANTIC
      COAST FEDERAL CORPORATION**





**FORM
      10-Q**





**March
      31, 2007**





**Part
      II - Other Information**





**Signatures**








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





ATLANTIC
                COAST FEDERAL CORPORATION
              (Registrant)Date:
              May 14, 2007
            By:
            /s/ Robert
              J.
              Larison, JrRobert
                J. Larison, Jr., President and ChiefExecutive
                Officer 
 Date:
                May 14, 2007
              By:
              /s/ Jon
                C.
                Parker, Sr.Jon
                    C. Parker, Sr., Senior Vice-President andChief
                    Financial Officer
  25