**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





**xQUARTERLY
      REPORT
      PURSUANT TO SECTION 13 OR 15(d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





**For
      the quarterly period ended June 30, 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**
              (State
                or other jurisdiction of
              incorporation
                or organization)
            
            **59-3764686**
              (I.R.S.
                Employer
              Identification
                Number)**505
                Haines Avenue**
              **Waycross,
                Georgia**
              (Address
                of principal Executive Offices)
            
            **31501**
              (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 Filer oAccelerated
      Filer oNon-Accelerated
      Filer x





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 August 8, 2007Common
                  Stock, $0.01 Par Value
              13,675,025
                  shares





**ATLANTIC
      COAST FEDERAL CORPORATION**





**Form
      10-Q Quarterly Report**





**Table
      of Contents**





Page
                Number**PART
                I. FINANCIAL INFORMATION**Item
                1.
            Financial
                Statements
            
            2Item
                2.
            Management’s
                Discussion and Analysis ofFinancial
                Condition and Results of Operations
            
            13Item
                3.
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            28Item
                4.
            Controls
                and Procedures
            
            30**PART
                II. OTHER INFORMATION**Item
                1.
            Legal
                Proceedings
            
            30Item
                1A
            Risk
                Factors
            
            30Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            30Item
                3.
            Defaults
                upon Senior Securities
            
            31Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            31Item
                5.
            Other
                Information
            
            31Item
                6.
            Exhibits
            
            31Form
                10-Q
            Signature
                Page
            
            32Ex-31.1
            Section
                302 Certification of CEO
            
            33Ex-31.2
            Section
                302 Certification of CFO
            
            34Ex-32
            Section
                906 Certification of CEO and CFO
            
            35









**ATLANTIC
      COAST FEDERAL CORPORATION**


**CONSOLIDATED
      BALANCE SHEETS**


**June
      30, 2007 (unaudited) and December 31, 2006**


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


2007
            
            2006ASSETSCash
                and due from financial institutions
            
            $
            8,129
            
            $
            10,571Short-term
                interest earning deposits
            
            
            31,907
            
            
            30,486Total
                cash and cash equivalents
            
            
            40,036
            
            
            41,057Other
                interest earning deposits in other financial institutions
            
            
            -
            
            
            1,200Securities
                available for sale
            
            
            126,857
            
            
            99,231Real
                estate mortgages held for sale
            
            
            2,332
            
            
            4,365Loans,
                net of allowance for loan losses of $5,071 at June 30, 2007
                and$4,705
                at December 31, 2006
            
            
            668,837
            
            
            639,517Federal
                Home Loan Bank stock
            
            
            7,988
            
            
            7,948Accrued
                interest receivable
            
            
            3,706
            
            
            3,499Land,
                premises and equipment
            
            
            17,225
            
            
            17,610Bank
                owned life insurance
            
            
            21,794
            
            
            21,366Other
                real estate owned
            
            
            1,753
            
            
            286Goodwill
            
            
            2,661
            
            
            2,661Other
                assets
            
            
            5,226
            
            
            4,339Total
                assets
            
            $
            898,415
            
            $
            843,079LIABILITIES
                AND STOCKHOLDERS' EQUITYDepositsNon-interest-bearing
                demand
            
            $
            42,298
            
            $
            38,301Interest-bearing
                demand
            
            
            50,325
            
            
            52,895Savings
                and money market
            
            
            211,284
            
            
            158,229Time
            
            
            294,184
            
            
            323,627Total
                deposits
            
            
            598,091
            
            
            573,052Securities
                sold under agreements to repurchase
            
            
            63,500
            
            
            29,000Federal
                Home Loan Bank advances
            
            
            142,000
            
            
            144,000Accrued
                expenses and other liabilities
            
            
            5,727
            
            
            5,940Total
                liabilities
            
            
            809,318
            
            
            751,992Commitments
                and contingencies
            
            
            -
            
            
            -Preferred
                stock: $0.01 par value; 2,000,000 shares authorizednone
                issued
            
            
            -
            
            
            -Common
                stock: $0.01 par value; 18,000,000 shares authorized,shares
                issued of 14,813,469 at June 30, 2007 and December 31, 2006;
                sharesoutstanding
                of 13,676,071 at June 30, 2007 and 13,784,330 at December 31,
                2006
            
            
            148
            
            
            148Additional
                paid in capital
            
            
            58,428
            
            
            57,708Unearned
                employee stock ownership plan (ESOP) shares of 302,588 atJune
                30, 2007 and 325,864 at December 31, 2006
            
            
            (3,026
            )
            
            (3,259
            )Retained
                earnings
            
            
            52,882
            
            
            52,711Accumulated
                other comprehensive income
            
            
            (1,380
            )
            
            (204
            )Treasury
                stock, at cost, 1,137,398 shares at June 30, 2007 and1,029,139
                at December 31, 2006
            
            
            (17,955
            )
            
            (16,017
            )Total
                stockholders' equity
            
            
            89,097
            
            
            91,087Total
                liabilities and stockholders' equity
            
            $
            898,415
            
            $
            843,079




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 June 30,
            
            Six
                months ended June 30,2007
            
            2006
            
            2007
            
            2006Interest
                and dividend incomeLoans,
                including fees
            
            $
            11,481
            
            $
            9,995
            
            $
            22,533
            
            $
            19,402Securities
                and interest-earning depositsin
                other financial institutions
            
            
            2,285
            
            
            1,161
            
            
            4,489
            
            
            2,268Total
                interest and dividend income
            
            
            13,766
            
            
            11,156
            
            
            27,022
            
            
            21,670Interest
                expenseDeposits
            
            
            5,994
            
            
            4,249
            
            
            11,814
            
            
            8,101Federal
                Home Loan Bank advances
            
            
            1,601
            
            
            1,348
            
            
            3,209
            
            
            2,716Securities
                sold under agreements to repurchase
            
            
            633
            
            
            137
            
            
            1,108
            
            
            195Total
                interest expense
            
            
            8,228
            
            
            5,734
            
            
            16,131
            
            
            11,012Net
                interest income
            
            
            5,538
            
            
            5,422
            
            
            10,891
            
            
            10,658Provision
                for loan losses
            
            
            509
            
            
            204
            
            
            805
            
            
            280Net
                interest income after provision for loan losses
            
            
            5,029
            
            
            5,218
            
            
            10,086
            
            
            10,378Noninterest
                incomeService
                charges and fees
            
            
            1,313
            
            
            1,502
            
            
            2,540
            
            
            2,844Gain
                on sale of real estate mortgages held for sale
            
            
            5
            
            
            13
            
            
            15
            
            
            16Loss
                on sale of securities available for sale
            
            
            (38
            )
            
            11
            
            
            (46
            )
            
            (165
            )Commission
                income
            
            
            63
            
            
            68
            
            
            137
            
            
            149Interchange
                fees
            
            
            233
            
            
            199
            
            
            443
            
            
            394Bank
                owned life insurance earnings
            
            
            217
            
            
            211
            
            
            428
            
            
            415Other
            
            
            266
            
            
            114
            
            
            371
            
            
            4242,059
            
            
            2,118
            
            
            3,888
            
            
            4,077Noninterest
                expenseCompensation
                and benefits
            
            
            3,154
            
            
            2,617
            
            
            6,170
            
            
            5,244Occupancy
                and equipment
            
            
            603
            
            
            490
            
            
            1,191
            
            
            997Data
                processing
            
            
            270
            
            
            440
            
            
            604
            
            
            806Advertising
            
            
            150
            
            
            215
            
            
            296
            
            
            430Outside
                professional services
            
            
            741
            
            
            456
            
            
            1,372
            
            
            950Interchange
                charges
            
            
            93
            
            
            161
            
            
            193
            
            
            328Collection
                expense and repossessed asset losses
            
            
            87
            
            
            81
            
            
            133
            
            
            163Telephone
            
            
            113
            
            
            120
            
            
            227
            
            
            243Other
            
            
            973
            
            
            674
            
            
            1,733
            
            
            1,3276,184
            
            
            5,254
            
            
            11,919
            
            
            10,488Income
                before income tax expense
            
            
            904
            
            
            2,082
            
            
            2,055
            
            
            3,967Income
                tax expense
            
            
            269
            
            
            672
            
            
            635
            
            
            1,266Net
                income
            
            $
            635
            
            $
            1,410
            
            $
            1,420
            
            $
            2,701Earnings
                per common share:Basic
            
            $
            0.05
            
            $
            0.10
            
            $
            0.11
            
            $
            0.20Diluted
            
            $
            0.05
            
            $
            0.10
            
            $
            0.11
            
            $
            0.20Dividends
                declared per common share
            
            $
            0.14
            
            $
            0.10
            
            $
            0.27
            
            $
            0.19





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 Six Months Ended June 30, 2007 and June 30, 2006**


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


**(unaudited)**


**ACCUMULATED****ADDITIONAL**
              
              **UNEARNED**
              
              
              
              **OTHER****COMMON**
              
              **PAID
                  IN**
              
              **ESOP**
              
              **RETAINED**
              
              **COMPREHENSIVE**
              
              **TREASURY**
              
              **TOTAL****STOCK**
              
              **CAPITAL**
              
              **STOCK**
              
              **EARNINGS**
              
              **INCOME**
              
              **STOCK**
              
              **EQUITY**For
                  the six months ended June 30, 2007Balance
                  at January 1, 2007
              
              $
              148
              
              $
              57,708
              
              $
              (3,259
              )
              $
              52,711
              
              $
              (204
              )
              $
              (16,017
              )
              $
              91,087ESOP
                  shares earned, 23,276 shares
              
              
              
              
              
              196
              
              
              233
              
              
              
              
              
              
              
              
              
              
              
              429Stock
                  options exercised
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              52
              
              
              52Management
                  restricted stock expense
              
              
              
              
              
              221
              
              
              
              
              
              
              
              
              
              
              
              116
              
              
              337Stock
                  options expense
              
              
              
              
              
              303
              
              
              
              
              
              
              
              
              
              
              
              (139
              )
              
              164Dividends
                  declared ( $.27 per share)
              
              
              
              
              
              
              
              
              
              
              
              (1,249
              )
              
              
              
              
              
              
              
              (1,249
              )Treasury
                  stock purchased at cost, 105,838 shares
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,967
              )
              
              (1,967
              )Comprehensive
                  income:Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              1,420
              
              
              
              
              
              
              
              
              1,420Other
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,176
              )
              
              
              
              
              (1,176
              )Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              244Balance
                  at June 30, 2007
              
              $
              148
              
              $
              58,428
              
              $
              (3,026
              )
              $
              52,882
              
              $
              (1,380
              )
              $
              (17,955
              )
              $
              89,097For
                  the six months ended June 30, 2006Balance
                  at January 1, 2006
              
              $
              148
              
              $
              56,876
              
              $
              (3,724
              )
              $
              49,629
              
              $
              (408
              )
              
              ($9,603
              )
              $
              92,918ESOP
                  shares earned, 23,276 shares
              
              
              
              
              
              113
              
              
              233
              
              
              
              
              
              
              
              
              
              
              
              346Management
                  restricted stock expense
              
              
              
              
              
              294
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              294Stock
                  options expense
              
              
              
              
              
              152
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              152Dividend
                  declared ($.19 per share)
              
              
              
              
              
              
              
              
              
              
              
              (962
              )
              
              
              
              
              
              
              
              (962
              )Comprehensive
                  income:Net
                  income
              
              
              
              
              
              
              
              
              
              
              
              2,701
              
              
              
              
              
              
              
              
              2,701Other
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (352
              )
              
              
              
              
              (352
              )Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,349Balance
                  at June 30, 2006
              
              $
              148
              
              $
              57,435
              
              $
              (3,491
              )
              $
              51,368
              
              $
              (760
              )
              $
              (9,603
              )
              $
              95,097
  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)**





Six
                months ended June 30,2007
            
            2006Cash
                flows from operating activitiesNet
                income
            
            $
            1,420
            
            $
            2,701Adjustments
                to reconcile net incometo
                net cash from operating activities:Provision
                for loan losses
            
            
            805
            
            
            280Gain
                on sale of real estate mortgages held for sale
            
            
            (15
            )
            
            (16
            )Loans
                originated for sale
            
            
            (48,830
            )
            
            (2,248
            )Proceeds
                from loan sales
            
            
            50,876
            
            
            1,209Gain
                on sale of other real estate owned
            
            
            (2
            )
            
            1Loss
                on sale of securitiesavailable
                for sale
            
            
            46
            
            
            165Loss
                on disposal of equipment
            
            
            117
            
            
            30ESOP
                compensation expense
            
            
            429
            
            
            346Share-based
                compensation expense
            
            
            501
            
            
            446Net
                depreciation and amortization
            
            
            925
            
            
            965Net
                change in accrued interest receivable
            
            
            (207
            )
            
            (214
            )Increase
                in cash surrender value of bank owned life insurance
            
            
            (428
            )
            
            (415
            )Net
                change in other assets
            
            
            (187
            )
            
            111Net
                change in accrued expensesand
                other liabilities
            
            
            (291
            )
            
            (912
            )Net
                cash from operating activites
            
            
            5,159
            
            
            2,449Cash
                flows from investing activitiesProceeds
                from maturities and paymentsof
                securites available for sale
            
            
            9,026
            
            
            8,873Proceeds
                from the sales of securitiesavailable
                for sale
            
            
            14,619
            
            
            15,935Purchase
                of securities available for sale
            
            
            (53,197
            )
            
            (22,768
            )Loans
                purchased
            
            
            (13,041
            )
            
            (16,314
            )Net
                change in loans
            
            
            (19,017
            )
            
            (18,099
            )Expenditures
                on premises and equipment
            
            
            (449
            )
            
            (1,357
            )Proceeds
                from the sale of other real estate owned
            
            
            263
            
            
            390Purchase
                of FHLB stock
            
            
            (40
            )
            
            252Net
                change in other investments
            
            
            1,200
            
            
            300Net
                cash from investing activities
            
            
            (60,636
            )
            
            (32,788
            )




(Continued)





5


**ATLANTIC
        COAST FEDERAL CORPORATION**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **(Dollars
        in Thousands)**
 **(unaudited)**
 Six
                      months ended June 30,2007
                  
                  2006Cash
                      flows from financing activitiesNet
                      increase in deposits
                  
                  $
                  25,039
                  
                  $
                  31,722FHLB
                      advances
                  
                  
                  20,000
                  
                  
                  -Proceeds
                      from sale of securitiesunder
                      agreements to repurchase
                  
                  
                  34,500
                  
                  
                  12,000Repayment
                      of FHLB advances
                  
                  
                  (22,000
                  )
                  
                  (10,000
                  )Proceeds
                      from exercise of stock options
                  
                  
                  52
                  
                  
                  -Treasury
                      stock repurchased
                  
                  
                  (1,967
                  )
                  
                  -Dividends
                      paid
                  
                  
                  (1,168
                  )
                  
                  (872
                  )Net
                      cash from financing activities
                  
                  
                  54,456
                  
                  
                  32,850Net
                      change in cash and cash equivalents
                  
                  
                  (1,021
                  )
                  
                  2,511Cash
                      and equivalents beginning of period
                  
                  
                  41,057
                  
                  
                  37,959Cash
                      and equivalents at end of period
                  
                  $
                  40,036
                  
                  $
                  40,470Supplemental
                      information:Interest
                      paid
                  
                  $
                  15,951
                  
                  $
                  10,779Income
                      taxes paid
                  
                  
                  1,520
                  
                  
                  2,207Supplemental
                      noncash disclosures:Loans
                      transferred to other real estate
                  
                  $
                  1,730
                  
                  $
                  401
  The
          accompanying notes are an integral part of these unaudited consolidated
          financial statements.
 6





**ATLANTIC
      COAST FEDERAL CORPORATION**


**CONDENSED
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**


**June
      30, 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 and six
      month periods ended June 30, 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
      restated to change the Company’s accounting for certain interest rate swap
      derivatives previously designated and accounted for as cash flow hedges under
      Statement of Financial Accounting Standards No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* (“SFAS
      133”), as presented in the Company’s Form 10-K/A, should be read in conjunction
      with these statements.





Certain
      items in the June 30, 2006 Form 10-Q were reclassified/restated 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**
 **June
        30, 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.





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.





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 June 30, 2007 gross unrealized losses on available for sale
      securities were $2.2 million 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 $63.5 million at June 30, 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 at June 30, 2007 is summarized as follows:





8


**ATLANTIC
        COAST FEDERAL CORPORATION**
 **CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2007**
 **(Unaudited)**




**NOTE
      5. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE** (Continued)


(Dollars
                  in Thousands)Average
                  daily balance
              
              $
              48,963Average
                  interest rate
              
              
              4.56
              %Maximum
                  month-end balance
              
              $
              63,500Weighted
                  average interest rate at period end
              
              
              4.52
              %





**NOTE
      6. DIVIDENDS**





During
      the second quarter of 2007, the Company’s board of directors declared a regular
      quarterly cash dividend at a rate of $0.14 per share. The dividend was payable
      on July 30, 2007 for stockholders of record on July 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 second quarter dividend on its owned shares, as was done
      throughout 2006.




Total
      dividends charged to retained earnings for the six months ended June 30, 2007
      were $1,249,000.





**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 and six months
      ended June 30, 2007 and 2006, is as follows:





9


**ATLANTIC
        COAST FEDERAL CORPORATION**
 **CONDENSED
        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
 **June
        30, 2007**
 **(Unaudited)**




**NOTE
      7. EARNINGS PER COMMON SHARE**(Continued)





For
                the three months
            
            For
                the six monthsended
                June 30,
            
            ended
                June 30,2007
            
            2006
            
            2007
            
            2006BasicNet
                income
            
            $
            635
            
            $
            1,410
            
            $
            1,420
            
            $
            2,701Weighted
                average common shares outstanding
            
            
            13,673,768
            
            
            14,145,800
            
            
            13,714,047
            
            
            14,144,002Less:
                Average unallocated ESOP shares
            
            
            (325,864
            )
            
            (372,416
            )
            
            (325,864
            )
            
            (372,416
            )Average
                unvested restricted stock awards
            
            
            (225,695
            )
            
            (262,919
            )
            
            (226,524
            )
            
            (261,121
            )Average
                Shares
            
            
            13,122,209
            
            
            13,510,465
            
            
            13,161,659
            
            
            13,510,465Basic
                earnings per common share
            
            $
            0.05
            
            $
            0.10
            
            $
            0.11
            
            $
            0.20DilutedNet
                Income
            
            $
            635
            
            $
            1,410
            
            $
            1,420
            
            $
            2,701Weighted
                average common shares outstandingper
                common share
            
            
            13,122,209
            
            
            13,510,465
            
            
            13,161,659
            
            
            13,510,465Add:
                Dilutive effects of assumed exercise of stock options
            
            
            87,210
            
            
            -
            
            
            51,445
            
            
            -Dilutive
                effects of full vesting of stock awards
            
            
            112,911
            
            
            91,385
            
            
            70,396
            
            
            80,536Average
                shares and dilutive potential common shares
            
            
            13,322,330
            
            
            13,601,850
            
            
            13,283,500
            
            
            13,591,001Diluted
                earnings per common share
            
            $
            0.05
            
            $
            0.10
            
            $
            0.11
            
            $
            0.20




Stock
      options for 6,064 and 542,400 shares of common stock were not considered in
      computing diluted earnings per common share for the three and six months ended
      June 30, 2007 and 2006, respectively, because they were anti-dilutive.




10




**NOTE
      8. OTHER COMPREHENSIVE INCOME**





Comprehensive
      income components and related taxes for the three and six months ended June
      30,
      2007 and 2006 were as follows:


(Dollars
                  in Thousands)Three
                  months ended June 30,
              
              Six
                  months ended June 30,2007
              
              2006
              
              2007
              
              2006Unrealized
                  holding losseson
                  securities available for sale
              
              $
              (2,061
              )
              $
              (397
              )
              $
              (1,829
              )
              $
              (714
              )Less
                  reclassification adjustments for (gains)losses
                  recognized in income
              
              
              38
              
              
              11
              
              
              46
              
              
              (165
              )Net
                  unrealized losses
              
              
              (2,099
              )
              
              (408
              )
              
              (1,875
              )
              
              (549
              )Tax
                  effect
              
              
              783
              
              
              148
              
              
              699
              
              
              197Net-of-tax
                  amount
              
              
              (1,316
              )
              
              (260
              )
              
              (1,176
              )
              
              (352
              )Other
                  comprehensive loss
              
              $
              (1,316
              )
              $
              (260
              )
              $
              (1,176
              )
              $
              (352
              )





**NOTE
      9 - STOCK CONVERSION**


On
          May 7,
          2007, Board of Directors of Atlantic Coast Federal, MHC (the “Mutual Holding
          Company”) approved a plan of conversion and reorganization to convert the Mutual
          Holding Company from the mutual to stock form of organization. Pursuant
          to the
          plan of conversion and reorganization, on June 28, 2007 Atlantic Coast
          Financial
          Corporation filed a registration statement with Securities and Exchange
          Commission. Simultaneous to the filing of the registration statement, the
          Company filed an Application for Conversion with the OTS. Atlantic Coast
          Financial Corporation is a Maryland holding company that has been formed
          in
          connection with the stock conversion of Atlantic Coast Federal,
          MHC.
  The
          Mutual Holding Company is a federally chartered mutual holding company
          and
          currently owns approximately 63.8%, of the outstanding shares of common
          stock of
          the Company, which owns 100% of the issued and outstanding shares of the
          capital
          stock of Atlantic Coast Bank. Under the terms of Atlantic Coast Federal,
          MHC’s
          plan of conversion and reorganization, Atlantic Coast Federal, MHC will
          convert
          from the mutual holding company to the stock holding company corporate
          structure. As part of the conversion, Atlantic Coast Financial Corporation
          is
          offering for sale in a subscription offering, and possibly in a community
          and/or
          a syndicated community offering, the majority ownership interest of the
          Company
          that is currently owned by the Mutual Holding Company. Upon the completion
          of
          the conversion and offering, the Mutual Holding Company will cease to exist,
          and
          the Company will complete the transition from partial to full public stock
          ownership. Upon completion of the conversion, existing public stockholders
          of
          Atlantic Coast Federal Corporation will receive shares of common stock
          of
          Atlantic Coast Financial Corporation in exchange for their shares of Atlantic
          Coast Federal Corporation common stock in order to maintain the public
          stockholders’ existing percentage ownership in our organization (excluding any
          new shares purchased by them in the offering).




11




**NOTE
      9 - STOCK CONVERSION**(Continued)





In
            connection with the conversion, shares of common stock of Atlantic Coast
            Financial Corporation, representing the ownership interest of the Mutual
            Holding
            Company, will be offered for sale to depositors of the Bank. The following
            persons and employee benefit plans have subscription rights to purchase
            shares
            of common stock of the new holding company in the following order of
            priority:
            (1) depositors of record as of March 31, 2006; (2) the Bank's tax qualified
            employee benefit plans, including the employee stock ownership plan and
            the
            401(k) plan; (3) depositors of record as of the end of the calendar quarter
            preceding the commencement of the offering; and (4) depositors entitled
            to vote
            on the conversion proposal. If necessary, shares will be offered to the
            general
            public. In addition, upon completion of the conversion of the Mutual
            Holding
            Company, shares of the Company's common stock held by public stockholders
            will
            be exchanged for shares of a new corporation, which will become the Bank's
            new
            parent holding company. As a result of the conversion and offering, the
            Mutual
            Holding Company and Company will cease to exist.
 
 The
            conversion is subject to approval by the Office of Thrift Supervision
            as well as
            approval by the Mutual Holding Company's members (depositors of the Bank)
            and
            the Company's stockholders. Proxy materials setting forth information
            relating
            to the conversion and offering will be sent to the members of the Mutual
            Holding
            Company and stockholders of the Company for their consideration. The
            offering
            will be made only by means of a prospectus in accordance with federal
            law and
            all applicable state securities laws.
 
 On
            August
            13, 2007 the Company announced that Atlantic Coast Financial Corporation
            has
            temporarily postponed its planned stock offering as a result of current
            market
            conditions. Atlantic Coast Financial Corporation is a Maryland holding
            company
            that has been formed to become the new holding company of Atlantic Coast
            Bank in
            connection with the mutual-to-stock conversion of Atlantic Coast Federal,
            MHC.
            The conversion is expected to be completed in the fourth quarter of 2007
            or the
            first quarter of 2008.


12




**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 2 of the Notes to
      Consolidated Financial Statements included in Item 8 of our Annual Report on
      Form 10-K/A 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.




13


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 $5.1 million at June 30, 2007, and
      $4.6
      million at June 30, 2006. The provision for loan loss expense was $805,000
      for
      the six months ended June 30, 2007, and $280,000 for the same period in 2006.
      The lower provision for loan losses in the first six months 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 second 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
      loss resulting from changes in the fair market value of Atlantic Coast Federal
      Corporation’s available for sale securities portfolio totaled $1.3 million and
      $352,000 for the six months ended June 30, 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 June 30, 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.





14


**Comparison
      of Financial Condition at June 30, 2007 and December 31,
      2006**





**General.** Annualized
      asset growth at June 30, 2007 as compared to December 31, 2006 was
      approximately 13%. Loan growth slightly outpaced deposit growth, as the Bank
      continues to offer competitive rates within its geographic market. Prepayments
      decreased 28% in the three months ended June 30, 2007 as compared to the three
      months ended March 31, 2007, but were still above 2006 levels. Loan growth
      was
      slightly higher for the three months ended June 30, 2007 as compared to the
      three months ended March 31, 2007, which when combined with lower prepayment
      activity and the purchase of $13.9 million in loans, resulted in nearly 5%
      loan
      growth overall. As
      part
      of its ongoing asset and liability management strategy, the Company continued
      to
      leverage its growth in securities available for sale to take advantage of
      favorable interest rate spreads and to reduce our exposure to interest rate
      risk.





Following
      is a summarized comparative balance sheet as of June 30, 2007 and December
      31,
      2006:


June
                  30,
              
              December
                  31,
              
              Increase
                  (decrease)2007
              
              2006
              
              Dollars
              
              PercentageAssets
              
              (Dollars
                  in Thousands)Cash
                  and cash equivalents
              
              $
              40,036
              
              $
              41,057
              
              $
              (1,021
              )
              
              -2.5
              %Other
                  interest earning investments
              
              
              -
              
              
              1,200
              
              
              (1,200
              )
              
              -100.0
              %Securitites
                  available for sale
              
              
              126,857
              
              
              99,231
              
              
              27,626
              
              
              27.8
              %Loans
              
              
              673,908
              
              
              644,222
              
              
              29,686
              
              
              4.6
              %Allowance
                  for loan losses
              
              
              (5,071
              )
              
              (4,705
              )
              
              (366
              )
              
              7.8
              %Loans,
                  net
              
              
              668,837
              
              
              639,517
              
              
              29,320
              
              
              4.6
              %Loans
                  held for sale
              
              
              2,332
              
              
              4,365
              
              
              (2,033
              )
              
              -46.6
              %Other
                  assets
              
              
              60,353
              
              
              57,709
              
              
              2,644
              
              
              4.6
              %Total
                  assets
              
              $
              898,415
              
              $
              843,079
              
              $
              55,336
              
              
              6.6
              %Liabilities
                  and Stockholders' equityDepositsNon-interest
                  bearing
              
              $
              42,298
              
              $
              38,301
              
              $
              3,997
              
              
              10.4
              %Interest
                  bearing transaction accounts
              
              
              50,325
              
              
              52,895
              
              
              (2,570
              )
              
              -4.9
              %Savings
                  and money market
              
              
              211,284
              
              
              158,229
              
              
              53,055
              
              
              33.5
              %Time
              
              
              294,184
              
              
              323,627
              
              
              (29,443
              )
              
              -9.1
              %Total
                  deposits
              
              
              598,091
              
              
              573,052
              
              
              25,039
              
              
              4.4
              %Federal
                  Home Loan Bank advances
              
              
              142,000
              
              
              144,000
              
              
              (2,000
              )
              
              -1.4
              %Securities
                  sold under agreements to repurchase
              
              
              63,500
              
              
              29,000
              
              
              34,500
              
              
              119.0
              %Accrued
                  expenses and other liabilities
              
              
              5,727
              
              
              5,940
              
              
              (213
              )
              
              -3.6
              %Total
                  liabilities
              
              
              809,318
              
              
              751,992
              
              
              57,326
              
              
              7.6
              %Stockholders'
                  equity
              
              
              89,097
              
              
              91,087
              
              
              (1,990
              )
              
              -2.2
              %Total
                  liabilities and stockholders' equity
              
              $
              898,415
              
              $
              843,079
              
              $
              55,336
              
              
              6.6
              %


**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.





**Securities
      available for sale** .
      Securities available for sale are composed principally of debt securities of
      U.S. Government-sponsored organizations and mortgage-backed securities. In
      the
      near-term we expect the composition of our investment portfolio to continue
      to
      be heavily weighted in these types of securities. During the six months ended
      June 30, 2007, the Company purchased $53.1 million of investment securities,
      increasing the investment balance by approximately $27.6 million to $126.9
      million, net of maturities and sales of $25.5 million at June 30, 2007.




15




**Loans** .
      Following is a comparative composition of net loans as of June 30, 2007 and
      December 31, 2006:


June
                  30, 2007
              
              %
                  of total loans
              
              December
                  31, 2006
              
              %
                  of total loansReal
                  estate loans:
              
              (Dollars
                  In Thousands)One-to-four
                  family
              
              $
              349,412
              
              
              52.1
              %
              $
              334,000
              
              
              52.2
              %Commercial
              
              
              69,390
              
              
              10.4
              %
              
              60,912
              
              
              9.5
              %Other
                  ( Land & Multifamily)
              
              
              39,587
              
              
              5.9
              %
              
              34,446
              
              
              5.4
              %Total
                  real estate loans
              
              
              458,389
              
              
              68.4
              %
              
              429,358
              
              
              67.1
              %Construction
                  loans:One-to-four
                  family
              
              
              18,742
              
              
              2.8
              %
              
              32,467
              
              
              5.1
              %Commercial
              
              
              13,040
              
              
              1.9
              %
              
              2,862
              
              
              0.4
              %Acquisition
                  and development
              
              
              3,453
              
              
              0.5
              %
              
              2,103
              
              
              0.3
              %Total
                  real estate construction loans
              
              
              35,235
              
              
              5.3
              %
              
              37,432
              
              
              5.8
              %Other
                  loans:Home
                  equity
              
              
              97,306
              
              
              14.5
              %
              
              91,062
              
              
              14.2
              %Consumer
              
              
              63,662
              
              
              9.5
              %
              
              63,630
              
              
              9.9
              %Commercial
              
              
              15,577
              
              
              2.3
              %
              
              19,044
              
              
              3.0
              %Total
                  other loans
              
              
              176,545
              
              
              26.3
              %
              
              173,736
              
              
              27.1
              %Total
                  loans
              
              
              670,169
              
              
              100
              %
              
              640,526
              
              
              100
              %Allowance
                  for loan losses
              
              
              (5,071
              )
              
              
              
              
              (4,705
              )Net
                  deferred loan costs
              
              
              3,476
              
              
              
              
              
              3,348Premiums
                  on purchased loans
              
              
              263
              
              
              
              
              
              348Loans,
                  net
              
              $
              668,837
              
              
              
              
              $
              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 66% of our loans invested in those
      types of loans at both June 30, 2007, and December 31, 2006. As of June 30,
      2007 our one- to four-family residential mortgages, as a percentage of total
      loans, was virtually flat compared to the year-end 2006 balance. Growth in
      the
      first mortgage loan portfolio 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. As of June 30, 2007, the Company purchased $13.0 million of
      variable-rate one- to four-family residential loans, to supplement our internal
      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 $104.4 million during the six months ended June 30, 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.




16





**Allowance
      for loan losse** s.
      Our
      allowance for loan losses was 0.75% and 0.73% of total loans outstanding at
      June
      30, 2007 and December 31, 2006, respectively. Allowance for loan losses activity
      for the six months ended June 30, 2007 and 2006 was as follows:


At
                  June 30,
              
              At
                  June 30,2007
              
              2006(Dollars
                  in Thousands)Beginning
                  balance
              
              $
              4,705
              
              $
              4,587Loans
                  charged-off
              
              
              (950
              )
              
              (668
              )Recoveries
              
              
              511
              
              
              420Net
                  charge-offs
              
              
              (439
              )
              
              (248
              )Provision
                  for loan losses
              
              
              805
              
              
              280Ending
                  balance
              
              $
              5,071
              
              $
              4,619


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. Given the geographic
      concentration of the Company’s residential single-family loan portfolio in the
      northeast Florida and southeast Georgia market, overall credit quality continues
      to be strong relative to the southeast region and national markets in general.
      The stability of the residential real estate market is considered in
      management’s estimate of loan losses, as are the types of loan products within
      its portfolio. Moreover, the Company does not originate or purchase sub-prime
      loans for its portfolio.





Non-performing
      loans totaled $3.1 million, constant at 0.47% of total loans, at both June
      30,
      2007, and December 31, 2006, and total impaired loans increased to $2.2
      million at June 30, 2007 from $2.0 million at December 31, 2006. The total
      allowance allocated for impaired loans was $593,000 at June 30, 2007 and
      $572,000 as of December 31, 2006. As of June 30, 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 June 30, 2007, and December 31, 2006. Non-performing loans, excluding
      small balance homogeneous loans, were $1.0 and $1.1 million at June 30, 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 June 30, 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 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 $63.5 million at June 30, 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 June 30, 2007,
      the weighted average rate of the agreements was 4.52%.




17





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 74 months and a weighted-average
      rate of 4.39% at June 30, 2007. The decrease in FHLB borrowings at June 30,
      2007
      as compared to December 31, 2006 was due to the maturity of $22.0 million of
      advances and additional borrowings of $20.0 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 $89.1 million at June 30, 2007
      from $91.1 million at December 31, 2006 primarily because of cash dividends
      and
      share repurchases. In June 2007, the Company’s board of directors declared a
      regular quarterly cash dividend at a rate of $0.14 per share. The dividend
      was
      payable on July 30, 2007, for stockholders of record on July 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 and second quarter dividend on its owned shares. Total dividends for
      the
      six months ended June 30, 2007 charged to stockholders’ equity was approximately
      $1.2 million, and approximately $2.4 million of dividend payments were waived
      by
      Atlantic Coast Federal, MHC. We expect Atlantic Coast Federal, 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 six months ended June
      30,
      2007.




The
      equity to assets ratio decreased to 9.9% at June 30, 2007, from 10.8% at
      December 31, 2006. The decrease was primarily due to common stock repurchased
      under the Company’s stock repurchase plan, the change in the fair market value
      of available-for-sale securities, and the rate of asset growth through June
      30,
      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 11.9%, and Tier 1 capital to
      total adjusted total assets was 8.2% at June 30, 2007. These ratios as of
      December 31, 2006 were 13.8%, 13.1% and 9.3%, respectively.





**Comparison
      of Results of Operations for the Three Months Ended June 30, 2007 and
      2006** .





**General** . **** Our
      net
      income for the three months ended June 30, 2007, was $635,000, which was a
      decrease of $775,000 from $1.4 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 2.1%, or $116,000 in the
      second 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
      June 30, 2007 was unchanged at $2.1 million as compared to the same three months
      in 2006. Non-interest expense grew $930,000, or 17.7%, to $6.2 million for
      the
      three months ended June 30, 2007, from $5.3 million for the same quarter in
      2006.





**Average
      Balances, Net Interest Income, Yields Earned and Rates Paid** .
      The
      following table sets forth certain information for the three months ended June
      30, 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.




18




For
                  the three months ended June 30,2007
              
              2006(Dollars
                  in Thousands)Average
                  Balance
              
              Interest
              
              Average
                  Yield /Cost
              
              Average
                  Balance
              
              Interest
              
              Average
                  Yield /CostINTEREST-EARNING
                  ASSETSLoans
                  receivable(1)
              
              $
              658,023
              
              $
              11,481
              
              
              6.98
              %
              $
              610,060
              
              $
              9,995
              
              
              6.55
              %Securites(2)
              
              
              129,972
              
              
              1,745
              
              
              5.37
              %
              
              68,536
              
              
              763
              
              
              4.45
              %Other
                  interest-earning assets(3)
              
              
              39,357
              
              
              540
              
              
              5.49
              %
              
              30,690
              
              
              398
              
              
              5.19
              %Total
                  interest-earning assets
              
              
              827,352
              
              
              13,766
              
              
              6.65
              %
              
              709,286
              
              
              11,156
              
              
              6.30
              %Non-interest
                  earning assets
              
              
              58,951
              
              
              
              
              
              
              
              
              55,146Total
                  assets
              
              $
              886,303
              
              
              
              
              
              
              
              $
              764,432INTEREST-BEARING
                  LIABILITIESSavings
                  deposits
              
              $
              41,230
              
              $
              39
              
              
              0.38
              %
              $
              52,072
              
              $
              51
              
              
              0.39
              %Interest
                  bearing demand accounts
              
              
              52,250
              
              
              398
              
              
              3.05
              %
              
              57,219
              
              
              341
              
              
              2.38
              %Money
                  market accounts
              
              
              158,179
              
              
              1,828
              
              
              4.62
              %
              
              71,923
              
              
              651
              
              
              3.62
              %Time
                  deposits
              
              
              299,444
              
              
              3,730
              
              
              4.98
              %
              
              307,081
              
              
              3,206
              
              
              4.18
              %Federal
                  Home Loan Bank advances
              
              
              142,000
              
              
              1,600
              
              
              4.51
              %
              
              123,011
              
              
              1,348
              
              
              4.38
              %Securities
                  sold under agreements to repurchase
              
              
              55,698
              
              
              633
              
              
              4.55
              %
              
              12,000
              
              
              137
              
              
              4.57
              %Total
                  interest-bearing liabilities
              
              
              748,801
              
              
              8,228
              
              
              4.40
              %
              
              623,306
              
              
              5,734
              
              
              3.68
              %Non-interest
                  bearing liabilities
              
              
              46,218
              
              
              
              
              
              
              
              
              47,397Total
                  liabilities
              
              
              795,019
              
              
              
              
              
              
              
              
              670,703Stockholders'
                  equity
              
              
              91,284
              
              
              
              
              
              
              
              
              93,729Total
                  liabilities and stockholders' equity
              
              $
              886,303
              
              
              
              
              
              
              
              $
              764,432Net
                  interest income
              
              
              
              
              $
              5,538
              
              
              
              
              
              
              
              $
              5,422Net
                  interest spread
              
              
              
              
              
              
              
              
              2.25
              %
              
              
              
              
              
              
              
              2.62
              %Net
                  earning assets
              
              $
              78,551
              
              
              
              
              
              
              
              $
              85,980Net
                  interest margin(4)
              
              
              
              
              
              
              
              
              2.68
              %
              
              
              
              
              
              
              
              3.06
              %Average
                  interest-earning assets to average interest-bearing
                  liabilities
              
              
              
              
              
              110.49
              %
              
              
              
              
              
              
              
              113.79
              %
  (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.
  19


**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 June 30,
      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
              
              $
              814
              
              $
              672
              
              $
              1,486Securities
              
              
              798
              
              
              183
              
              
              981Other
                  interest-earning assets
              
              
              118
              
              
              25
              
              
              143Total
                  interest-earning assets
              
              
              1,730
              
              
              880
              
              
              2,610**INTEREST-BEARING
                  LIABILITIES**Savings
                  deposits
              
              
              (10
              )
              
              (3
              )
              
              (13
              )Interest
                  bearing demand accounts
              
              
              (32
              )
              
              88
              
              
              56Money
                  market accounts
              
              
              956
              
              
              221
              
              
              1,177Time
                  deposits
              
              
              (81
              )
              
              606
              
              
              525Federal
                  Home Loan Bank advances
              
              
              213
              
              
              40
              
              
              253Securities
                  sold under agreements to repurchase
              
              
              497
              
              
              (1
              )
              
              496Total
                  interest-bearing liabilities
              
              
              1,543
              
              
              951
              
              
              2,494Net
                  interest income
              
              $
              187
              
              $
              (71
              )
              $
              116




**Interest
      income.** As
      shown
      in the table above the majority of the increase in interest income for the
      three
      months ended June 30, 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 57% of the interest income growth, or $1.5 million
      for the quarter ended June 30, 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 June 30, 2007 and December 31, 2006 -
      Loans,” the flattening of the 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 interest income from investment securities and other interest-earning
      assets for the quarter ended June 30, 2007, as compared to the same quarter
      in
      2006 was mainly due to higher average balances as the Company continued to
      leverage its growth in securities available for sale to take advantage of
      favorable interest rate spreads and to reduce our exposure to interest rate
      risk. In addition yields on these assets have consistently tracked upward 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 higher
      interest-earning assets.





**Interest
      expense.** The
      increase in interest expense for the three months ended June 30, 2007, as
      compared to the same period in 2006, was largely due to growth in average
      outstanding balances of interest-bearing deposit accounts, as well as higher
      cost of funds quarter to quarter of approximately 72 basis points. 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 also increased for the second quarter of 2007 as compared to the same
      quarter of 2006, as new advances have generally been at higher rates due to
      the
      increase in short-term rates during the second quarter of 2006. 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.




20





**Net
      interest income.** Net
      interest income increased during the three months ended June 30, 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. However, 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 37 basis points for the second
      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
      38
      basis points.





Our
      rapid
      loan growth which began 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 a flat yield curve combined with the fact that 41% 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 remainder 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 $509,000 and $204,000
      were made during the three months ended June 30, 2007 and 2006, respectively.
      The year-over-year change was primarily due to growth in the Company’s loan
      portfolio. Net charge-offs for the quarter ended June 30, 2007, were $292,000.
      By comparison, net charge-offs for the same three months in 2006 were $93,000. The
      increase in net charge-offs was due primarily to the write-down and
      reclassification of previously impaired residential construction loans to other
      real estate owned during the quarter ended June 30, 2007.





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
      June 30, 2007, is maintained at a level that represents management’s best
      estimate of probable losses in the loan portfolio.




21





**Non-interest
      income** .
      The
      components of non-interest income for the three months ended June 30, 2007
      and
      2006 were as follows:


Increase(decrease)2007
              
              2006
              
              Dollars
              
              Percentage(Dollars
                  in Thousands)Service
                  charges and fees
              
              $
              1,313
              
              $
              1,502
              
              $
              (189
              )
              
              -12.6
              %Net
                  loss on available for sale securities
              
              
              (38
              )
              
              11
              
              
              (49
              )
              
              -445.5
              %Gain
                  on sale of real estate mortgagesheld
                  for sale
              
              
              5
              
              
              13
              
              
              (8
              )
              
              -61.5
              %Commission
                  income
              
              
              63
              
              
              68
              
              
              (5
              )
              
              -7.4
              %Interchange
                  fees
              
              
              233
              
              
              199
              
              
              34
              
              
              17.1
              %Bank
                  owned life insurance earnings
              
              
              217
              
              
              211
              
              
              6
              
              
              2.8
              %Other
              
              
              266
              
              
              114
              
              
              152
              
              
              133.3
              %Total
              
              $
              2,059
              
              $
              2,118
              
              $
              (59
              )
              
              -2.8
              %


The
      decrease in non-interest income was due primarily to a decline in service
      charges and fees offset by the increase in fair market value of interest rate
      swaps recorded in other non-interest income. 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 June 30, 2007
      and 2006 were as follows:


Increase(decrease)2007
              
              2006
              
              Dollars
              
              Percentage(Dollars
                  in Thousands)Compensation
                  and benefits
              
              $
              3,154
              
              $
              2,617
              
              $
              537
              
              
              20.5
              %Occupancy
                  and equipment
              
              
              603
              
              
              490
              
              
              113
              
              
              23.1
              %Data
                  processing
              
              
              270
              
              
              440
              
              
              (170
              )
              
              -38.6
              %Advertising
              
              
              150
              
              
              215
              
              
              (65
              )
              
              -30.2
              %Outside
                  professional services
              
              
              741
              
              
              456
              
              
              285
              
              
              62.5
              %Interchange
                  charges
              
              
              93
              
              
              161
              
              
              (68
              )
              
              -42.2
              %Collection
                  expense and repossessedasset
                  losses
              
              
              87
              
              
              81
              
              
              6
              
              
              7.4
              %Telephone
              
              
              113
              
              
              120
              
              
              (7
              )
              
              -5.8
              %Other
              
              
              973
              
              
              674
              
              
              299
              
              
              44.4
              %Total
              
              $
              6,184
              
              $
              5,254
              
              $
              930
              
              
              17.7
              %


Nearly
      57% of the increase to compensation and benefit expense for the three months
      ended June 30, 2007, as compared to the same period in 2006, was due to
      increased salaries. This
      increase reflected higher salaries for regular annual salary increases, new
      executive additions, personnel costs associated with a new branch opened in
      Jacksonville in the fall of 2006, and the expansion of the Company's private
      banking activities. It also reflected higher legal and accounting fees related
      to the recent restatement of financial results and filings of amended reports
      with the Securities and Exchange Commission on Form 10-K/A for 2006 and Form
      10-Q/A for the first quarter of 2007 to correct the accounting treatment for
      two
      interest rate swap agreements, as well as increased legal fees for newly
      required executive compensation disclosures that were implemented in the
      Company's most recent proxy statement. Occupancy costs also rose due to the
      opening of the new branch, as did Federal Deposit Insurance Corporation premiums
      due to an increase in the assessment rate and a change in the timing of
      assessments. These higher costs were offset to some extent by lower data
      processing costs and advertising expenses. In the near term, we expect that
      non-interest expenses will continue to put pressure on earnings as management
      continues to align the Company’s operations and organizational structure to meet
      its strategic growth and profitability objectives.




22





**Income
      tax expense.** Income
      tax expense decreased $403,000 to $269,000 for the three months ended June
      30,
      2007, from $672,000 for the same period in 2006 due to a decrease in net
      income. Management anticipates that income tax expense will continue to vary as income
      before income taxes varies.





**Comparison
      of Results of Operations for the Six Months Ended June 30, 2007 and
      2006** .





**General** . **** Our
      net
      income for the six months ended June 30, 2007, was $1.4 million, which was
      a
      decrease of $1.3 million from $2.7 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 2.2%, or $232,000 for
      the
      six months ended June 30, 2007, compared to the same period 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 six
      months ended June 30, 2007 decreased by 4.6%, or $189,000, to $3.9 million
      as
      compared to $4.1 million for the same six months in 2006, due primarily to
      lower
      transactional based service charges and fees. Non-interest expense grew $1.4
      million, or 13.7%, to $11.9 million for the six months ended June 30, 2007,
      from
      $10.5 million for the same period in 2006 due to increased compensation and
      benefit costs and other non-interest costs.





**Average
      Balances, Net Interest Income, Yields Earned and Rates Paid** .
      The
      following table sets forth certain information for the six months ended June
      30,
      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.




23




For
                  the six months ended June 30,2007
              
              2006(Dollars
                  in Thousands)Average
                  Balance
              
              Interest
              
              Average
                  Yield /Cost
              
              Average
                  Balance
              
              Interest
              
              Average
                  Yield /CostINTEREST-EARNING
                  ASSETSLoans
                  receivable(1)
              
              $
              648,712
              
              $
              22,533
              
              
              6.95
              %
              $
              600,179
              
              $
              19,402
              
              
              6.47
              %Securites(2)
              
              
              121,172
              
              
              3,232
              
              
              5.33
              %
              
              69,990
              
              
              1,500
              
              
              4.29
              %Other
                  interest-earning assets(3)
              
              
              46,711
              
              
              1,257
              
              
              5.38
              %
              
              31,222
              
              
              768
              
              
              4.92
              %Total
                  interest-earning assets
              
              
              816,595
              
              
              27,022
              
              
              6.62
              %
              
              701,391
              
              
              21,670
              
              
              6.18
              %Non-interest
                  earning assets
              
              
              58,775
              
              
              
              
              
              
              
              
              57,799Total
                  assets
              
              $
              875,370
              
              
              
              
              
              
              
              $
              759,190INTEREST-BEARING
                  LIABILITIESSavings
                  deposits
              
              $
              41,531
              
              $
              83
              
              
              0.40
              %
              $
              52,596
              
              $
              105
              
              
              0.40
              %Interest
                  bearing demand accounts
              
              
              51,649
              
              
              788
              
              
              3.05
              %
              
              66,326
              
              
              800
              
              
              2.41
              %Money
                  market accounts
              
              
              144,651
              
              
              3,325
              
              
              4.60
              %
              
              60,813
              
              
              1,035
              
              
              3.40
              %Time
                  deposits
              
              
              308,055
              
              
              7,618
              
              
              4.95
              %
              
              304,118
              
              
              6,161
              
              
              4.05
              %Federal
                  Home Loan Bank advances
              
              
              142,822
              
              
              3,209
              
              
              4.49
              %
              
              126,005
              
              
              2,717
              
              
              4.31
              %Securities
                  sold under agreements to repurchase
              
              
              48,963
              
              
              1,108
              
              
              4.53
              %
              
              8,517
              
              
              194
              
              
              4.56
              %Total
                  interest-bearing liabilities
              
              
              737,671
              
              
              16,131
              
              
              4.37
              %
              
              618,375
              
              
              11,012
              
              
              3.56
              %Non-interest
                  bearing liabilities
              
              
              46,379
              
              
              
              
              
              
              
              
              46,821Total
                  liabilities
              
              
              784,050
              
              
              
              
              
              
              
              
              665,196Stockholders'
                  equity
              
              
              91,320
              
              
              
              
              
              
              
              
              93,994Total
                  liabilities and stockholders' equity
              
              $
              875,370
              
              
              
              
              
              
              
              $
              759,190Net
                  interest income
              
              
              
              
              $
              10,891
              
              
              
              
              
              
              
              $
              10,658Net
                  interest spread
              
              
              
              
              
              
              
              
              2.24
              %
              
              
              
              
              
              
              
              2.62
              %Net
                  earning assets
              
              $
              78,924
              
              
              
              
              
              
              
              $
              83,016Net
                  interest margin(4)
              
              
              
              
              
              
              
              
              2.67
              %
              
              
              
              
              
              
              
              3.04
              %Average
                  interest-earning assets to average interest-bearing
                  liabilities
              
              
              
              
              
              110.70
              %
              
              
              
              
              
              
              
              113.42
              %
  (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.
  24


**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 six months ended June 30, 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
              
              $
              1,630
              
              $
              1,501
              
              $
              3,131Securities
              
              
              1,298
              
              
              434
              
              
              1,732Other
                  interest-earning assets
              
              
              411
              
              
              78
              
              
              489Total
                  interest-earning assets
              
              
              3,339
              
              
              2,013
              
              
              5,352**INTEREST-BEARING
                  LIABILITIES**Savings
                  deposits
              
              
              (22
              )
              
              -
              
              
              (22
              )Interest
                  bearing demand accounts
              
              
              (198
              )
              
              186
              
              
              (12
              )Money
                  market accounts
              
              
              1,826
              
              
              465
              
              
              2,291Time
                  deposits
              
              
              81
              
              
              1,376
              
              
              1,457Federal
                  Home Loan Bank advances
              
              
              374
              
              
              118
              
              
              492Securities
                  sold under agreements to repurchase
              
              
              915
              
              
              (2
              )
              
              913Total
                  interest-bearing liabilities
              
              
              2,976
              
              
              2,143
              
              
              5,119Net
                  interest income
              
              $
              363
              
              $
              (130
              )
              $
              233


**Interest
      income.** As
      shown
      in the table above the majority of the increase in interest income for the
      six
      months ended June 30, 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 58% of the interest income growth, or $3.1 million
      for the six months ended June 30, 2007, as compared to the same period 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 June 30, 2007 and December 31, 2006 -
      Loans,” the flattening of the 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 six months ended June 30, 2007, as compared to the same period
      in
      2006, accounted for approximately 44%, or $21.5 million of the total $48.5
      million in average loan growth. During the same periods, the prime rate
      increased 100 basis points from 7.25% to 8.25%.





The
      growth in interest income from investment securities and other interest-earning
      assets for the six ended June 30, 2007, as compared to the same period in 2006
      was mainly due to higher average balances as the Company continued to leverage
      its growth in securities available for sale to take advantage of favorable
      interest rate spreads and to reduce our exposure to interest rate risk. In
      addition yields on these assets have consistently tracked upward 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 higher
      interest-earning assets.




25




**Interest
      expense.** The
      increase in interest expense for the six months ended June 30, 2007, as compared
      to the same period in 2006, was largely due to growth in average outstanding
      balances of interest-bearing deposit accounts, as well as higher cost of funds
      period to period of approximately 81 basis points. 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 six months ended June 30, 2007 as compared to the same
      period in 2006, as new advances have generally had longer maturities and,
      therefore, we have benefited from the flattening of the yield curve. 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 six months ended June 30, 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.
      However, 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 38 basis points for the six months ended June 30, 2007
      as
      compared to the same period 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 decreased37 basis points.





Our
      rapid
      loan growth which began 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 a flat yield curve combined with the fact that 41% 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 $805,000 and $280,000
      were made during the six months ended June 30, 2007 and 2006, respectively.
      The
      year-over-year change was primarily due to 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 during the first quarter of 2006, and to a lesser extent growth in the
      Company’s loan portfolio. Net charge-offs for the six months ended June 30,
      2007, were $439,000. By comparison, net charge-offs for the same six months
      in
      2006 were $248,000. The increase in net charge-offs was due primarily to the
      write-down and reclassification of previously impaired residential construction
      loans to other real estate owned during the quarter ended June 30,
      2007.




26





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
      June 30, 2007, is maintained at a level that represents management’s best
      estimate of probable losses in the loan portfolio.





**Non-interest
      income** .
      The
      components of non-interest income for the six months ended June 30, 2007 and
      2006 were as follows:


Increase(decrease)2007
              
              2006
              
              Dollars
              
              Percentage(Dollars
                  in Thousands)Service
                  charges and fees
              
              $
              2,540
              
              $
              2,844
              
              $
              (304
              )
              
              -10.7
              %Net
                  loss on available for sale securities
              
              
              (46
              )
              
              (165
              )
              
              119
              
              
              -72.1
              %Gain
                  on sale of real estate mortgagesheld
                  for sale
              
              
              15
              
              
              16
              
              
              (1
              )
              
              -6.3
              %Commission
                  income
              
              
              137
              
              
              149
              
              
              (12
              )
              
              -8.1
              %Interchange
                  fees
              
              
              443
              
              
              394
              
              
              49
              
              
              12.4
              %Bank
                  owned life insurance earnings
              
              
              428
              
              
              415
              
              
              13
              
              
              3.1
              %Other
              
              
              371
              
              
              424
              
              
              (53
              )
              
              -12.5
              %Total
              
              $
              3,888
              
              $
              4,077
              
              $
              (189
              )
              
              -4.6
              %


The
      decrease in non-interest income, primarily as a result of a decrease in service
      charges and fees, was offset by lower net losses on available for sale
      securities. 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 six months ended June 30, 2007
      and 2006 were as follows:


Increase(decrease)2007
              
              2006
              
              Dollars
              
              Percentage(Dollars
                  in Thousands)Compensation
                  and benefits
              
              $
              6,170
              
              $
              5,244
              
              $
              926
              
              
              17.7
              %Occupancy
                  and equipment
              
              
              1,191
              
              
              997
              
              
              194
              
              
              19.5
              %Data
                  processing
              
              
              604
              
              
              806
              
              
              (202
              )
              
              -25.1
              %Advertising
              
              
              296
              
              
              430
              
              
              (134
              )
              
              -31.2
              %Outside
                  professional services
              
              
              1,372
              
              
              950
              
              
              422
              
              
              44.4
              %Interchange
                  charges
              
              
              193
              
              
              328
              
              
              (135
              )
              
              -41.2
              %Collection
                  expense and repossessedasset
                  losses
              
              
              133
              
              
              163
              
              
              (30
              )
              
              -18.4
              %Telephone
              
              
              227
              
              
              243
              
              
              (16
              )
              
              -6.6
              %Other
              
              
              1,733
              
              
              1,327
              
              
              406
              
              
              30.6
              %Total
              
              $
              11,919
              
              $
              10,488
              
              $
              1,431
              
              
              13.6
              %


Approximately
      59% of the increase to compensation and benefit expense for the six months
      ended
      June 30, 2007, as compared to the same period in 2006, was due to increased
      salaries. This
      increase reflected higher salaries for regular annual salary increases, new
      executive additions, personnel costs associated with a new branch opened in
      Jacksonville in the fall of 2006, and the expansion of the Company's private
      banking activities. It also reflected higher legal and accounting fees related
      to the recent restatement of financial results and filings of amended reports
      with the Securities and Exchange Commission on Form 10-K/A for 2006 and Form
      10-Q/A for the first quarter of 2007 to correct the accounting treatment for
      two
      interest rate swap agreements, as well as increased legal fees for newly
      required executive compensation disclosures that were implemented in the
      Company's most recent proxy statement. Occupancy costs also rose due to the
      opening of the new branch, as did Federal Deposit Insurance Corporation premiums
      due to an increase in the assessment rate and a change in the timing of
      assessments. These higher costs were offset to some extent by lower data
      processing costs and advertising expenses. In the near term, we expect that
      non-interest expenses will continue to put pressure on earnings as management
      continues to align the Company’s operations and organizational structure to meet
      its strategic growth and profitability objectives.




27




**Income
      tax expense.** Income
      tax expense decreased $631,000 to $635,000 for the six months ended June 30,
      2007, from $1.3 million for the same period in 2006 due to a decrease in net
      income. 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
      (“ALCO”).





The
      purpose of ALCO is to communicate, coordinate and control asset/liability
      management consistent with our business plan and board approved policies. ALCO
      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.





ALCO
      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.
      ALCO
      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.




28





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
      June 30, 2007, is as follows:


Economic
                  Value of Equityand
                  Duration of Assets and Liabilities at June 30, 2007Change
                  in Interest Rate(Dollars
                  in Thousands)Decrease
              
              Decrease
              
              Decrease
              
              Increase
              
              Increase
              
              Increase3%
              
              2%
              
              1%
              
              1%
              
              2%
              
              3%Duration
                  of assets(1)
              
              
              2.20
              
              
              2.20
              
              
              2.25
              
              
              2.59
              
              
              2.58
              
              
              2.58Duration
                  of liabilities(1)
              
              
              2.51
              
              
              2.51
              
              
              2.51
              
              
              2.01
              
              
              2.01
              
              
              2.13Differential
                  in duration
              
              
              -0.31
              
              
              -0.31
              
              
              -0.26
              
              
              0.57
              
              
              0.57
              
              
              0.45Amount
                  of change in Economic Value of Equity(2)
              
              $
              (8,526
              )
              $
              (5,684
              )
              $
              (2,371
              )
              $
              (5,223
              )
              $
              (10,235
              )
              $
              (12,134
              )Percentage
                  change in Economic Value of Equity(2)
              
              
              -9.05
              %
              
              -6.04
              %
              
              -2.52
              %
              
              -5.55
              %
              
              -10.87
              %
              
              -12.89
              %


(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 mitigate the impact to our
      net interest margin of sudden and unplanned interest rate changes... As of
      June
      30, 2007, the Company held interest rate swap agreements with a notional amount
      of $15 million and a fair value of approximately $836,000, which do not qualify
      for hedge accounting treatment. 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.




29





**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 June
      30,
      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**





**June
      30, 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




Our
      non-interest expense, which consists primarily of the costs associated with
      operating our business, represents a high percentage of the income we generate.
      The cost of generating our income is measured by our efficiency ratio, which
      represents non-interest expense divided by the sum of our net interest income
      and our non-interest income. Our efficiency ratio has been affected by our
      efforts to expand our branch network and the corresponding infrastructure,
      as
      well as by the inverted yield curve, which affects our ability to originate
      loans with interest rates sufficiently in excess of our deposit and borrowing
      costs. If we are able to lower our efficiency ratio, our ability to generate
      income from our operations will be more effective. For the years ended December
      31, 2006 and 2005, our efficiency ratios were 73.1% and 69.9%, respectively.
      Generally, this means that we spent $0.73 and $0.70 during 2006 and 2005 to
      generate $1.00 of income. This reflects a trend where our efficiency ratio
      has
      deteriorated **** from
      63.5% to 73.1% for the five-year period ended December 31, 2006. For the six
      months ended June 30, 2007 and 2006, our efficiency ratio was 80.6% and 71.2%
      respectively.





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




The
      table
      below sets forth information regarding the Company’s common 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.




30




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
                  ProgramsApril
                  1, 2007 through April 30, 2007
              
              
              -
              
              
              -
              
              
              -
              
              
              182,646May
                  1, 2007 through May 31, 2007
              
              
              -
              
              
              -
              
              
              -
              
              
              182,646June
                  1, 2007 through June 30, 2007
              
              
              -
              
              
              -
              
              
              -
              
              
              182,646Total
              
              
              -
              
              $
              -
              
              
              -
              
              
              182,646





Item
      3. Defaults
      Upon Senior Securities




None





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




At
      the
      Company’s annual Stockholders’ Meeting (the “Meeting”) held on May 18, 2007, all
      nominees for director proposed by the Company were elected. The votes cast
      for
      each nominee were as follows:


For
              
              WithheldCharles
                  E. Martin, Jr.
              
              
              12,659,209
              
              
              34,496Thomas
                  F. Beeckler
              
              
              12,649,085
              
              
              44,620Forrest
                  W. Sweat, Jr.
              
              
              12,660,096
              
              
              33,609





Also
      at
      the Meeting, the stockholders ratified the appointment of Crowe Chizek and
      Company LLC as the independent registered public accounting firm for Atlantic
      Coast Federal Corporation for the fiscal year ending December 31, 2007. The
      votes cast for and against and the number of abstentions was as
      follows:


For
              
              Against
              
              Abstain
              
              Broker
                  Non-vote
              
              Withheld12,685,907
              
              
              1,840
              
              
              5,958
              
              
              0
              
              
              0





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




31


**ATLANTIC
      COAST FEDERAL CORPORATION**





**FORM
      10-Q**





**June
      30, 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:
              August 14, 2007
            
            /s/
              Robert J. Larison, JrRobert
                J. Larison, Jr.,
              President
                and ChiefExecutive
                OfficerDate: August 14, 2007
            /s/ Dawna R. MillerDawna
                R. Miller,
              Senior
                Vice President andChief
                Financial Officer


32